5 years ago

Menu for 2019: Market messages

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What do the markets say about 2019 expectations? Since much of the 2018 economic noise was more often than not swamped by strident political preferences and short-cuts, 2019 prognostications may not be all that complicated. Particularising appraisals, however, remain the devil: too much cluttered details hinders coherent pathways from being forged, even more hinder the nudging of aggregated interpretations given how interlocking national economies have become. Whether we look at the growth-rate, unemployment figures, and the government interest-rate for 10-year bonds, we get almost identical pictures: where hope flourished the most last year, the future cannot but be more toned-down; and where governments have the habit of intervening, it is where governments "of the few, by the few, and for the few" that make markets move over those where governments "of the many, by the many, and for the many" prevail.

Among countries that matter, China and India led the growth-rate list, with 6.6 per cent and 7.4 per cent, respectively. Bangladesh's 7.8 per cent could be singled out as belonging where the hay is being made while the sun shines, but in reality it is not yet inside the ballpark where single-country policy-changes impacts other economies, indeed so far removed from the global "action," that something about changing the ball-game demands attention. To get there, Bangladesh has to diversify beyond its stubbornly-held ready-made garments (RMG) phase; and no time is more propitious than right now to do so on the back of its RMG growth: additional emphasis will help it reach the $50 billion export target by 2021, by when the infrastructures of low-wage leather-, pharmaceutical-, or software-production should begin the diversification process. More hay will be made there since more sun shines upon those sectors. Yet, 2019 is unlikely to reap that harvest: the necessary pieces are not in place.

Though China's growth-rate figure seems inflated, India's is dipping, making both leaders tentative 2019 starters. On top of that, China still has not faced the full brunt of the US tariff-war, which it will in 2019, while India's 2019 election also places significant speed-bumps along the way. Other countries with more than a 5.0 per cent growth-rate include: the Philippines (6.2 per cent), Egypt (5.3 per cent), Pakistan (5.2 per cent), and Poland (5.0 per cent), while Malaysia's 4.7 per cent, Thailand's 4.1 per cent, Chile's 3.9 per cent, Turkey's 3.8 per cent, Peru's 3.7 per cent, Singapore's 3.5 per cent, Hong Kong's 3.4 per cent, and Australia's 3.2 per cent should augment aggregate welfare leaps. On the one hand, three of the top-4 on the above-5 per cent list have populist governments, with Pakistan desperately negotiating an IMF-bail-out while expecting Chinese or Arab charity to be able to breathe in 2019, while Poland's neighbourhood is so economically mired (the European Union growth-rate barely being 2.1 per cent), that it seems unlikely to do any better in 2019, more likely slide somewhat appreciably. Chile and Peru in South America, as well as the two islands, Hong Kong and Singapore, seem set to hold their ground given their more dynamic decision-making, but since they all depend on larger markets or partners, all of whom seem to be suffocating to varying degrees, or coughing intermittently, we cannot expect transformational changes here.

They would be even harder in the countries barely hanging on, that is, with a slightly better than 2.0 per cent growth-rate. Almost all of these are in West Europe (where the highest growth-rate after Poland is Austria with 2.9 per cent, the Czech Republic and the Netherlands with 2.8 per cent, as well as Spain, Sweden, and Switzerland with 2.7 per cent each). With Germany bogged down at 1.9 per cent, and on the threshold of losing the stabilising presence of Chancellor Angela Merkel from 2021, it seems unlikely European recovery can happen without a resurgent Germany, and particularly with France's 1.7 per cent and Britain's 1.3 per cent strapping the continent further down. Populist growth is a safer 2019 prediction than the rational policy-making counterparts needed for growth.

While these will not immediately impact imports, particularly low-waged, like those of Bangladesh's RMG exports (even populists need clothing, on top of that warm clothing given the European clime), they do send an early warning to low-waged exporters to start their own diversification. This message is more robustly emitted from Canada and the United States, where growth-rates of 2.3 per cent and 2.9 per cent, respectively, suggest those countries are not out of the woods, and that at least the United States will turn to artificial intelligence (AI), such as robots, to reinvigorate its RMG industry rather than open up to one-sided Asian or Latin exports that President Donald J. Trump blames the country's current economic malaise upon.

In short, then, 2018 growth-rates have been too defensive to propel significant 2019 growth, an outcome further compounded by unemployment figures. Just the European Union (EU) average of 8.1 per cent indicates how tall a task it will be to open new export markets inside Europe by outsiders, like Bangladesh. While the 3.7 per cent US figure may be the country's lowest since the 1960s, it exposes how the fundamental distinction between full-time and part-time workers must now factor in for any coherent macroeconomic analysis and targets, given the paucity of jobs available and the insufficiently of the skills needed to land a job: automation is already wreaking more havoc in DCs  for LDC exporters to gloat about their hitherto low-waged export surpluses continuing ad infinitum.

Other emerging countries also face the same unemployment malaise: Chile's 7.1 per cent, Peru's 6.9 per cent, India's 6.6 per cent, Pakistan's 5.9 per cent, the Philippines's 5.1 per cent, and Indonesia's 5.3 per cent. The old adage of getting the flu by catching the cold seems to be taking hold of too many economically up-stream countries to permit 2019 to hold on to even the murky 2018 outcomes. With its 1.1 per cent growth-rate, Japan's economy is sliding in the wrong direction, and its 2.4 per cent unemployment figure does not portray the immensely costly demographic pressure it is facing. Unlike European countries also facing the same problem of a similar magnitude, Japan has opened its labour market, for the first time to low-waged Asians, but prospects of populism emerging in Japan could pull it down to where European countries now lie: in stagnation. Yet, the message is reaffirmed: the big guns will not be blazing in 2019 to help the "meow-ing" African, Asian, and Latin low-waged free-riders.

Interest-rates merely consolidate those unsavoury interpretations and expectations. For a fair measurement, 10-year government bonds can be used. They show why there is no gasoline in the tank of DC economies to spur LDC growth. Europe's average is barely 0.26 per cent, indicating how dependent this continent has become on stimulus (in fact, how even stimuli have just not bailed out these formidable economies from their plight); and though the 2.9 per cent US figure shows signs of coming out of the stimuli-trap, they have been trapped by fluctuating post-midterm election stock-market indices. They, in turn, more or less confirm the evaporating investor confidence. Even in countries with high growth-rates, spiralling interest-rates have subdued investors rather than inflationary pressures attracting them (as has been the western pattern), meaning the absence or fragility of market traction: China's 3.0 per cent may be too contrived, but India's 7.46 per cent, Indonesia's 8.0 per cent, Pakistan's 12.7 per cent, the Philippines 7.11 per cent, or anywhere in South America, where Chile's 4.39 per cent is the lowest, have only bottlenecked growth.

Put together, it is apparent, the 2019 and future economies might have to depend more on governmental intervention to remain propped up, and promoting business interests can remain the only outlet for any type of growth. This will be resented by the average citizens, leading to more unilateral and interventionist policies rather than the legislatively democratic type we were so addicted to after World War II.

Dr. Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.

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