The eye of the cyclone

A cyclone is brewing in the global economy. The US – with its erratic policy-making causing major shocks of uncertainty – is in the eye of the storm, sending headwinds toward the rest of the world.

While China, Japan and the Eurozone are in the stable vortex of the cyclone, able to absorb the shocks, emerging markets are in the unstable vortex, leaving them in a vulnerable position. Nevertheless, we predict the global economy can weather this storm, with world GDP growth expected to remain resilient in 2018 and 2019.

The storm centers on the US, a ‘high pressure economy’ tirelessly creating jobs. Approaching a situation of overheating, the Fed won’t hesitate to tighten its monetary policy, and this could have global repercussions on the most cash dependent economies and companies. The US fiscal policy also plays the role of a powerful absorber of global USD liquidities by offering attractive returns to investors. Beside these centripetal forces, we have also centrifugal forces originating in the US in the form of real and potential threats of protectionism.

Figure 1: Nurturing global uncertainty with protectionism (centrifugal forces)