Global economy resilient despite US shocks – Euler Hermes

Firm says that although US policies are causing some instability, global economic growth is still positive

Global economy resilient despite US shocks – Euler Hermes

Insurance News

By Ryan Smith

World GDP growth should be resilient in 2018 and 2019, despite destabilizing forces in the US, according to credit insurer Euler Hermes.

The credit insurer predicted that global economic growth will be 3.2% in 2018 and 3.1% in 2019, versus 3.2% last year. The momentum of global economic growth is still positive despite “US sources of instability” including the upcoming midterm elections and “uncooperative” policies, Euler Hermes said.

“A lot will now depend on the capacity of countries to withstand global liquidity and uncertainty shocks originating from the US,” Euler Hermes said. “The US economy is a high pressure economy: all indicators confirm a cyclical acceleration embodied by growingly tight market conditions. Risks of overheating and policy mistakes are contained for now but a rapid deterioration of the public deficit coupled with a tighter monetary policy are draining global liquidities, while protectionist temptations nurture global uncertainty.”

While the credit insurer believes that China, the Eurozone and Japan will remain stable, it said that other countries are becoming unstable because of the US’s actions, including Argentina, Turkey and South Africa.

Threats of protectionism and US tariffs have also impacted the global economy, with trade decelerating. Euler Hermes said it expects global trade to stay resilient despite the deceleration, however, growing 3.8% in volume in 2018 and 3.6% in 2019 (after 4.8% growth in 2017).

“Indeed, global demand is likely to stay strong despite protectionist headwinds; global unemployment has reached a record low in 2018,” Euler Hermes said.

However, US tariffs on Chinese imports – and Chinese retaliatory tariffs on US imports – are a risk to the global economy, Euler Hermes warned.

“The higher the US tariffs on China, the higher will be the risk for Asia-Pacific economic growth,” said Mahamoud Islam, regional economist at Euler Hermes Asia-Pacific. “Trade hubs such as Hong Kong, Taiwan and Singapore would be the most affected if tensions between China and the US were to escalate further.”

“While the phrase ‘trade war’ has been used, we see the current situation as more of a ‘trade feud,’” said Ludovic Subran, chief economist for Euler Hermes. “Encouragingly, global trade is actually doing well after rising around 5% last year. For the moment, it is outweighing the dampening effects of new protectionism measures by the world’s largest economies – but we may see an increase in payment risk across the globe if further measures are imposed.”

 

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