Global Uncertainty is on the Rise
Political uncertainty is on the rise across the globe. With conflict within Europe, a government shutdown in the US, and other developments around the globe, things are starting to look a bit shaky. Here’s a look at key areas important to pay attention to.
Brexit
The upcoming plan on how the United Kingdom will finally leave the “EuroZone” is likely to be rejected. Many in Theresa May’s own party, the current Prime Minister of the UK pushing for the deal, are expected to vote against an agreement for an exit from the European Union. In fact, the vote is expected to have a margin of up to 150 parliament members voting against, the largest margin in over a century and a major embarrassment for May. The potential for any exit deal being reached, at least in the near future, looks unlikely.
This rejection will likely come with some volatility in the British Sterling. As the “Brexit” fades out, some are predicting that the currency could rise as high as 20%. This could, in the short term, affect the UK’s rate of exportation since such rise in the currency will make it more expensive for other countries to import from the UK. But, remaining in the Union (if they choose to withdraw plans) will allow them to retain favorable trade conditions with other Europen countries which should mitigate some of the negatives.
Shutdown
Meanwhile, across the Pacific, there seems to be no end in sight for the government shut down. Trump’s shut down is beginning to cause irreversible damage to many small businesses. Some Republicans have asked Trump to allow the government to reopen. Democrats are also open to a deal and have asked for the reopening of the government in the meantime. Trump continues to say he won’t give unless he gets $5.7 billion for around 1,900 miles of a wall across the country’s southern border. He does not have the votes in either the house or senate for such an amount.
Many expected the shutdown to conclude quickly, as previous shutdowns have. But, under the Trump administration, this is now the longest period of time the government has been shut down in the history of the country. Although, markets in the US are faring better than global markets, and despite a recent rally, the S&P 500 is still about 12% down from its previous high. Unless President Trump changes his mind on preventing a reopening, further selling is likely as investors flock to safety from market volatility caused by uncertainty over when this shutdown will end.
Eastern Bickering
And to the East, current allies Japan and South Korea bicker amongst each other. The dispute is due to court decisions by South Korea intended to aide former wronged workers by giving them a stake in Japanese companies. As a response, Japan has threated to place sanctions on South Korea. Japan has also accused South Korea of displaying military aggression against Japanese warplanes. This leaves these two close US allies with their most strained relationship since the re-establishment of diplomatic ties in 1965, after a long period of antagonism, according to a former South Korean ambassador to Japan.
All of this friction has cast doubt over future cooperation in the region as well as the US’ ability to contain North Korea and China. That is, a conflict between western allies are a benefit to those who seek to gain ground in international politics and markets. Unless South Korea can find a way to allow past conflicts to fade, expect some potential weakening of economic conditions in the area as well as more gains by the Chinese (which is already expected to be the world’s most powerful economy by 2024).
Huawei
The Chinese, however, are not free from conflict. Recently, Poland has joined the US in charging the Chinese company Huawei with espionage. In other words, it’s more than possible that the Chinese government is using the international company to spy on other companies and countries. At the moment, the Polish government is discussing how it can limit further risks posed by the company without causing too much strain on their relationship with Beijing. But, some international conflict is likely to arise from the situation as countries around the globe become weary of a Chinese corporate presence within their borders. Currently, Poland is seeking advice from NATO allies on how to best deal with the situation.
Limiting Huawei’s presence in Poland would cause damage to both Poland and Huawei. Huawei owns about 50% of the Polish telecommunications infrastructure market and Poland is one of Huawei’s biggest markets outside of China. However, if that infrastructure is being used to spy on the Polish people, the Polish government might have to take the hit alongside Huawei’s credibility as a legitimate company. In other words, further uncertainty, market volatility, and relationship straining around the globe are likely thanks to Chinese government spying.
Conclusion
The world is in a state of extreme uncertainty. This could be why corporate earnings are expected to drop and why many economists are expecting the economy to slow down in 2019. Will all this uneasiness and international conflict lead to a global recession in the near future? It’s difficult to tell, but it doesn’t hurt to prepare for the possibility.
Originally published at medium.com on January 15, 2019.
