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The global fashion business journal

Jun 13, 20243:37pm

From Brexit to Trump’s permission: keys of macro scenario

Economy is still in the same uncertainty scenario than the last couple of months. Trade war gets stronger, Brexit explodes, and interest rates sink.

Sep 2, 2019 — 8:57am
Silvia Riera/ Daniela García

From the Brexit to Trump’s permission: keys of macro scenario



Economy comes back at the same point it was one moth ago. Activity reactivates in September but with the same turbulent and uncertain macroeconomic environment, just like the previous month. Trade war, Brexit, negative interest rates and geopolitical tensions continue to mark the decision making.


Trade war shows collateral damages

The trade war between China and United States has reached a turning point. In August, the main mandataries of both countries increased the battles with the announcment of new tariff raises.  


The president of the United States, Donald Trump, even asked the companies in his country to stop producing in China. However, the Chinese government was the one that restarted negotiations.


Collateral damages of this fight between the world’s biggest economies start to show in the economic development of its own territories, but also in the global growth: drop of global trade becomes bigger, export economies started suffering and emerging currencies weaken.


Negative interest rates remain

The vice-president of the European Central Bank, Luis de Guindos, stated that the negative interest rates will remain. The paradigm of a healthy inflation doesn’t stay in the eurozone and the stimulus policy remains.  


More than three years of negative interest rates and the banks have strarted to hint alarm signs in this situation, that continues to widen its margins. This policy penalizes savings, and even if it seems to benefit the mortgage credits, the banks increase other commissions to earn profitability.


With this measure, the European Central Bank keeps looking for a cash flow, so it is invested, but it continues to fail at the doors of another recession. However, in the United States, the Federal Reserve Bank dropped its interests by 0.25 basic points last July, its first cut since 2008.


Recession alarms start to ring  

The threat of a recession returns to the big economies like Germany, Italy, the United Kingdom, the United States or China, that analyst fear will dry its growth. The International Monetary Fund (IMF) lowered its global growth forecast for 2019 to 3.2% in its last report in July.


Bad news in this subject don't stop. The Gross Domestic Product (GDP) of Germany and the United Kingdom, the two largest European economies, fell in the second quarter of the year and everything seems to indicate that Germany will fall again in the third quarter, giving rise to talk again of technical recession. Its high exposure to foreign trade is now one of its main weaknesses.


In the United States, the president of the Federal Reserve, Jerome Powell, said that there were more and more clouds in the US economy even though it is still evolving positively. China, on the other hand, continues to drop its growth rate.

Will Brexit hit hard?

October 31st is the new date that the British Government of Boris Johnson has set in the calendar to decouple definitively from the European Union with or without a deal. The movements of last week have put the economy of the country, and the European Union, on alert to the consequences that could cause a breakdown that is not agreed.

It is estimated that such a scenario would lead to a collapse of the pound sterling. Other immediate effect would be a decrease in the investment due to the uncertainty of the new reality and the tariff increase in the European Union, its main trading partner.



China speeds its economic cycle change  

It is not only the trade conflict with the United States that shakes the Chinese economy. The income per capita continues to increase, but job creation is expected to lower as the growth of the economy slows and the cost of living continues to rise.


In August, China marked the worst record in the evolution of its industrial production since 2002, as a result of the country weak domestic demand and the foreign trade battle. To compensate for this, at the end of the month, the Beijing Government activated a plan to boost domestic consumption and accelerate the country economic cycle to reduce dependence on industry and exports.

Geopolitical tensions don’t loosen up

The dialectical confrontation and strategic movements raise the climate of tension between the United States, Russia, China, North Korea and Iran. This exchange of accusations, military gestures and arms tests further agitate the environment of economic uncertainty, but also of some fear towards the possible outcome.


Beyond the destabilizing power of the president of the United States, there are other political conflicts that are far from being resolved. This is the case of the Hong Kong pro-democracy revolt and China's ability to contain and stifle protests; the internal conflict in Turkey before the progress of the secularist party, or the deep crisis in which Venezuela remains mired.


On the other hand, in countries such as the United Kingdom or Italy, the threat of early elections is on the table. In the first one, in case the Brexit was not achieved on October 31st; the second, if the negotiations between the Five Star Movement and the Democratic Party do not end.



Currencies on free fall

The Chinese currency is about to register its largest monthly decline in 25 years. The trade war has been the trigger for this decline that has led the yuan to touch its lowest level for eleven years. Last Friday, the value of this currency stood at 7,15 per dollar. If the trade war persists, the yuan would continue to decline.


Also, the British currency is marking downward records. The fluctuations of the pound continues to be linked to the evolution of the Brexit. At the end of August, with the announcement of the Prime Minister to shutdown the Parliament, the value of the currency collapsed. The euro, meanwhile, is also going down and everything indicates that it will lose in the coming days the ribbon of $ 1.10 from which it does not descend since 2017.


Sustainability or to rethink economy

United Nations has embraced teenage activist Greta Thunberg at its last summit in New York, which is being held these days. The attention she awakens in the press and in global institutions demonstrates the change in social, cultural and economic cycle.

One year and a half after the Climate Summit in Paris, there is not one industry that escapes sustainability criteria. Economy leaves behind a period of sustainability reports, good practices decalages to find new materials, manufacturers and distribution structures and new business models.   

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