Last week the headwinds constraining the world economy have just been blown out.
Dogged for most of Y 2019 by trade tensions and political risk that hammered business confidence, the outlook for global growth enters Y 2020 on a firmer footing after the US and China struck a partial trade deal and outlook for BREXIT cleared.
The China trade deal and UK election result have taken out a major tail risk overhanging markets and companies. Business confidence should see a large boost that could see a restart of global investment, inventory rebuild and a resurgence of global trade volume.
Like financial markets, most economists had factored in some kind of P-1 trade agreement between the world’s 2 largest economies when projecting the world economy would stabilize into Y 2020 after a recession scare earlier this year.
The agreement between President Trump and President Xi means some of the more dire scenarios being contemplated just a few months ago now appear less likely.
The P-1 deal leaves some complex issues unresolved. Still to be dealt with are US complaints over the vast web of subsidies ranging from cheap electricity to low-cost loans that China has used to build its industrial might.
President Trump said talks over a P-2 deal will start immediately.
As for BREXIT, the sweeping election victory by PM Boris Johnson’s Conservative Party means Britain is set to leave the EU on 31 January. The strong result puts a growth rebound in play which, coupled with looser fiscal policy, means activity should accelerate over Y 2019.
PM Johnson will now negotiate a new trade deal with the EU by the end of next year. And begin negotiations to replace it with a huge trade deal with the US.
The 2 developments come on broader signs that demand across much of the world is stabilizing as Key manufacturing gauges bottomed.
The International Monetary Fund had flagged Northside risks to its recent outlook if major trade tensions were resolved.
Have a terrific week
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