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거시경제 및 지정학

The Three Crises That Won't Go Away

2019년1월28일 - 3 분 읽기

There are three political clouds – The Government Shutdown, Trade Talks and Brexit – that have lingered much longer than expected, casting a shadow over global investor sentiment.

After a nice post-Christmas bounce, markets seem stalled, apparently undecided about the extent to which the global outlook is slowing. Much of the hard macroeconomic data remains solid, especially measures of Americans’ capacity and willingness to spend money. But global investor sentiment has clearly suffered from the market volatility and three political clouds that are lingering much longer than expected: 1) the government shutdown; 2) trade talks; and 3) Brexit.

“Much of the hard macroeconomic data remains solid, especially measures of Americans’ capacity and willingness to spend money.”

It’s still difficult to envision a major part of the global economy tipping into recession this year, even if the IMF has trimmed its 2019 global growth forecast from 3.7% to 3.5%. The major political distractions for investors, however, all look likely to get worse before they get better, which raises the risks on short-term sentiment and long-term investment.

1. THE GOVERNMENT SHUTDOWN

As 2018 ended, it seemed possible that the U.S. government might close for a few days, but the consensus scenario had both President Trump and Speaker Nancy Pelosi moving on to other business, both having demonstrated “resolve.” Unexpectedly, the standoff produced five bitter weeks of feuding. The government has now re-opened its doors temporarily, but the path to resolving the dispute over border and immigration issues remains deeply clouded. More important for investors, the prospects for progress on other key issues look bleak.

How bad is this for the economy? While the pain for government workers was severe even with their back salaries restored, the direct hit to the overall economy should be limited if a second shutdown is avoided. How bad is this for financial markets? Beyond the direct economic damage, investors must all but abandon their thin hopes for some limited progress on legislation that could support the economy.

“The longer the trade friction lasts, the more investors will have to price in the risks of tariffs and disruptions to global supply chains.”

Not only does an infrastructure spending deal look less likely than ever, but so does the ratification of the revised trade deal with Mexico and Canada. Oh, and the two parties must also find a way to raise the debt limit over the next few months. Democrats have said they will not risk the country’s credit rating in a political standoff, but investors will be holding their breath until an agreement is in place.

2. TRADE TALKS

On trade, the negotiations with China were moving ahead against a March 1 deadline for fresh U.S. tariffs on Chinese imports—this in spite of the fact that the Office of the U.S. Trade Representative had also furloughed much of its staff. President Trump tweeted that a good deal with China was at hand, but there were enough interruptions to keep investors on edge.

What’s especially tricky is assessing just how markets would react to a hypothetical agreement that includes Chinese commitments to buy more American exports, boost protection of U.S. intellectual property and limit state support for key industries. Even optimists concede that enforcing such a deal will be challenging, and that assumes that other Chinese political and national security issues don’t poison further cooperation with the U.S.

A slowing economy (to 6.4% last year) gives China every incentive to come to terms, but the impending extradition of a top Chinese telecom executive from Canada to the U.S. has made compromise increasingly difficult. And Secretary of State Mike Pompeo added further concerns around freedom of navigation and open markets when he spoke at Davos recently via video link. The longer the trade friction lasts, the more investors will have to price in the risks of tariffs and disruptions to global supply chains.

3. BREXIT

The third distraction, of course, is centered in London, where Britain’s impending exit from the European Union looks likely to cause further economic damage. January was supposed to be a month to tie up loose ends around some form of British departure before a deadline on March 29. Instead, the ‘Mother of Parliaments’ looks riven with increasingly unyielding factions, making a new election or a new Brexit referendum increasingly likely.

It is still possible that Prime Minister May could use the relentless clock to her advantage. She has presented a plan that just about everyone dislikes, but they all still seem to dislike the alternatives to her plan even more. Sterling has rallied slightly in expectation that a delayed Brexit might be possible, but the extension cannot be for more than a few weeks, as European Union elections are scheduled for May 23 and Britain’s seats will need to be reallocated to other countries.

The big question for investors is just how much damage, beyond the U.K., might come from this next act of the drama. The base case had long been that most of the cost of Brexit would land on Britain itself, but with economic data weakening in continental Europe, the further uncertainty has added to broader worries about Europe.

THE BOTTOM LINE

Global markets will likely continue to respond mainly to the prospects of economic profits; current trends in wage growth and corporate earnings should offer investors some comfort. But spending and investment also depend on having a relatively clear picture of the world’s political future, and that becomes harder to achieve with each week that these three global crises linger.

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