At the recent G20 summit, US President Trump and his colleagues once again spared us a catastrophe through their heroic conduct. Or such at least has been the press narrative built up very skilfully and effectively (particularly by the US) for the last few weeks. The problems that needed to be solved were actually created by the heads of government themselves beforehand – yet the G20 summit is viewed as a success.
One undoubtedly positive aspect is that there was no major spat at the G20 meeting, while the countries involved also managed to come up with a final declaration – a little humility at least. The commitment to environmental targets is also a positive and necessary thing, but unfortunately the US was ultimately not willing to play ball here.
The agreement between the US and China to resume negotiations on economic cooperation, and the announcements by President Trump that tariffs would not be increased further and that Huawei would be removed from the blacklist, are very welcome steps, which will have the effect of reducing the risks to the global economy. But the situation will also not improve in a lasting way – the tariffs already imposed by the US will remain in place. In addition, there is obviously still a risk that Trump could choose to break off negotiations once again at any stage, and perhaps even impose further tariffs on Chinese goods after all, which would weigh on corporate investment appetite further. Essentially, the US President fired off numerous threats in the direction of the Chinese government in advance of the G20 summit, only to then remove these from the negotiating table and earn plaudits for doing so – quite the skilled deal-maker.
But none of this will change the growth prospects for the global economy. True, the leading indicators could halt or at least slow their decline, but there is little chance of the global economy growing by more than 3% in 2019. Despite the positive news on the geopolitical front, the world’s key central banks will continue to pursue their expansionary monetary policy course. But the impact of this on the real economy and on inflation is likely to be negligible. All of this is already more than sufficiently reflected in the financial markets. The chances of persistent price rises in equity markets are therefore low in my view. Yields could even fall further in Europe, as inflation is likely to remain on a downward trajectory over the next few months.