The global economy ended 2018 on a relatively strong note, with the International Monetary Fund estimating growth of about 3.7% for the year. Both the US and China recorded respectable expansions, but clouds are gathering on the horizon, largely due to trade tensions sparked by President Trump's tariff policies.
The US economy saw robust mid-year growth, largely driven by President Trump's tax cuts, and is expected to register nearly 3% expansion for the year. However, the sustainability of this growth is uncertain. The surge may prove temporary, and the prospect of further interest rate rises by the Federal Reserve could slow the economy. President Trump has criticised the Fed, calling it 'the only problem our economy has,' despite Treasury Secretary Steve Mnuchin's reassurance that the president does not seek to sack Chairman Jerome Powell.
International trade presents another major risk. The US is engaged in a trade confrontation with China, with tariffs on Chinese goods already in place and due to increase from 10% to 25% in March. China is expected to retaliate. Additionally, US tariffs on steel and aluminium have affected numerous trade partners, and the continued trade tensions are a significant cloud over the outlook.
Europe faces its own challenges. The eurozone experienced a marked slowdown in the third quarter, partly due to new vehicle emissions testing. Manufacturing surveys showed a contraction in Italy and France in December. Brexit also looms as a trade issue, with the UK set to leave the EU on 29 March, potentially disrupting trade.
Stock markets ended 2018 poorly, reversing early gains and recording the worst year since the financial crisis. Lower share prices often signal broader economic problems ahead, adding to the uncertainty.
