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Threading needle between slowing growth, new policy

Dec 24. 2018
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GLOBAL ECONOMY in 2019 faces daunting challenges on multiple fronts. On the one hand, world economic growth is poised to decelerate as support from fiscal stimulus in the US such as tax cut and increased government spending fades.

While in Japan, consumption tax hike, scheduled to take effect in October next year, is a major risk that could bring down the world’s third largest economy into contraction in the last quarter next year. 

In China, adverse impact of trade war has yet to be felt in 2018 as exporters brought forward shipments to avoid the upcoming tariff increase. But fulfilling next year’s orders so far in advance could lead to a sharp slowdown in exports, and hence China economy, in 2019. 

While further US tariff hikes have been put on hold to until end-February under US-China truce agreement, but the prospects for a permanent trade deal remains elusive with the recent detention of Huawei's CFO in Canada foreshadowing upcoming trade negotiations.

Political events around Brexit, and France’s yellow vest protest could disrupt and severely harm economic growth in Europe. And in emerging economies, many countries have suffered sharp currency depreciation which will inevitably suppress demands going forward.

Central banks, on the other hand, are likely to continue to withdraw monetary policy support to rebuild headroom to stimulate economy before the next downturn arrives. The Fed is expected to raise policy rate at least twice next year. While the European Central Bank has decided to terminate its long-running QE programme at the end of this year. The Bank of Thailand also raised interest rate for the first time in 7 years despite slowing economic growth and falling inflation.

The combination of slower growth and less supportive policy is, to say the least, not market-friendly. The US S&P500 stock index has declined by more than 12% in the fourth quarter to the lowest level in 14 months. 

While the SET index has breached the all-important 1,600 point level last week. Though we do not expect significant downside risk to the market at this level,but the market volatility will likely to stay 2019. 

We remain cautious and like defensive sectors such as global healthcare stocks as they offer proven earning resilience to withstand economic downturn. And in the long run, the growth of healthcare sector is underpinned by the mega-trend of an aging global population.

Contributed by KOMSORN PRAKOBPHOL, Head of Tisco Economic Strategy Unit (ESU)


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