With another year comes another set of business challenges. What does 2019 have in store for global business? Three experts share their predictions.
Partner, Deloitte Access Economics
is likely to be a key issue. In 2016, we saw a stark shift away from more open borders globally. The UK voted to leave the EU
, and the Americans voted in a president preaching strong protectionist rhetoric. We held our breath and yet, two years later, the world economy keeps growing.
It will get more interesting in 2019, as this is the year Brexit actually happens – on 29 March, to be precise. Circle that in your diary and expect a flurry of brinkmanship and deal making between the EU and UK as the date draws closer.
On the other side of the Atlantic, tariffs are now in play. Do they stay in place, compound as threatened, or do deals get done? It takes time for global production to reorganise in response to new tariffs, but in 2019 we might see more and more businesses considering where they produce goods and how they organise their supply chains.
“For business, 2019 is the year to get involved and advocate for the great benefits that free trade brings.” David Rumbens
For Australian businesses that aren’t just focused on home these are important issues, but it’s not all doom – market access could also improve. We saw that in 2018, when Australia was central in salvaging the Trans Pacific Partnership after the US walked away.
As Brexit happens, Australia has a chance to again lead the way in affirming open borders by negotiating free trade deals with both the EU and UK. For business, 2019 is the year to get involved and advocate for the great benefits that free trade brings.
We are living in a more global yet strange political environment, where populism is winning over rational policy and behaviour, at least for the medium term into the 2020s.
One of the key issues for business in 2019 will centre on global and local politics. These include the impact of the results of the midterm US elections, the UK Brexit outcome in the early part of 2019, and Australia’s federal election.
There are also issues such as the trade wars, started by Donald Trump, and the impact on Australia’s trade (via China and the rest of Asia). Meaningful reforms to Australia’s labour market, taxation and energy policies, and whether they are addressed by any new government, will also be seminal to Australia’s economic progress. There will also be the impact of a number of financial issues in 2019.
These centre around interest rates and their bearing on the nation’s high household mortgage debt. We have overvalued global stock markets with their very high price/earning ratios (Australia being in the safer zone), the emerging impact of blockchain technology and the aftermath of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
“Populism is winning over rational policy and behaviour, at least for the medium term.” Phil Ruthven
Our social and technological changes are a third set of issues for business in the year to come. The exiting of baby boomers into retirement is accelerating (in favour of gen X and millennials) and online retailing and tertiary education are gathering speed.
Chief economist, RBC Capital Markets
The Australian economy continues to grow at an above-trend pace, with consumer and residential construction proving remarkably resilient in 2018. Bright spots are also evident in public spending, net exports with liquefied natural gas increasingly coming onstream, and some uplift in business investment. The pace of employment generation is encouraging and the unemployment rate is on a very gentle downward path.
The Reserve Bank of Australia’s (RBA) insistence that the next move is up looks to be a slam dunk. However, the longer the RBA’s cash rate stays at 1.5 per cent, the less sure we are about the direction of the next rate move, especially given the degree of excess capacity in the economy.
Our uncertainty reflects several factors. Firstly, amid escalating trade protectionism the outlook for global growth is becoming increasingly uncertain and occurs at a time when our largest trading partner, China, is already slowing.
Secondly, we are less confident the Australian growth momentum of H1 will continue as the housing market weakens, adding a cyclical challenge for households that already face record levels of debt, tepid income growth and a smaller savings buffer. Thirdly, funding pressures and independent hikes in mortgage rates are, in part, already exercising the RBA’s desire to lift rates.
“The unemployment rate is on a gentle downward path.” Su-Lin Ong
Of these three factors, global developments are, perhaps, the most important in the RBA’s policy debate. We think it will begin lifting the cash rate by late 2019, but the odds are that global growth will be weaker and less synchronised by then. Downside surprises on this front could force an RBA rethink.
David Rumbens leads the macroeconomics practice of Deloitte Access Economics and is a regular commentator on the Australian economy. He prepares a weekly economic briefing newsletter on macroeconomic trends for a broad subscriber base.
Phil Ruthven AM is founder of IBISWorld, an international corporation providing online business information, forecasting and strategic services. IBISWorld operates in Australia, the United States, China, the UK and Canada. In 2014, Ruthven became a Member of the Order of Australia in recognition of his significant service to business and commerce and the wider community.
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Su-Lin Ong is a managing director of RBC Capital Markets and chief economist and head of Australian research. Prior to joining RBC in 1998, she was a fixed income economist for Hambros Bank and, before that, worked as an economic adviser at the Department of the Prime Minister and Cabinet.
Ong recently joined the economic policy committee of CEDA (the Committee for the Economic Development of Australia) and was appointed to the Women in Banking and Finance (WIBF) board. She is also a member of RBC’s diversity council and is actively involved in its mentoring and charity programs, including Dress for Success and A Woman’s Place.