Mark your calendars. The world has just a few weeks to avert a dangerous slowdown in the global economy.
Two deadlines next month will have a huge impact on how the global economy fares in 2019. Depending on what happens when they pass, it could shake off a recent slump or slide towards a recession.
The United States has threatened to impose even higher tariffs on China if the world’s top two economies can’t do a deal on trade by March 1. Escalating the trade conflict would hurt the already slowing Chinese economy, dragging down other countries that rely on it for growth.
The United Kingdom and the European Union must find a solution to the current Brexit deadlock by March 29. If they fail, Britain could crash out of the bloc without a deal, disrupting the region’s economy for months.
On top of that, President Donald Trump is still threatening to impose new tariffs on imported cars. The US Commerce Department is investigating the issue and is expected to send its report to Trump by the end of this week. A decision could come soon after that.
Global growth is already slowing and the International Monetary Fund has warned that it will get worse if countries keep fighting over trade. Economists at Berenberg, a private bank in Germany, said last month that the risk of recession in the developed world is “more acute than it has been since the end of the euro crisis.”
Europe, and Germany in particular, is heavily exposed to all three trade disputes. The German economy is fueled by its huge export industry and if there’s a slowdown in demand from China, a chaotic Brexit and US car tariffs, stagnation could quickly turn into recession.
“The next six weeks will be crucial,” said Florian Hense, an economist at Berenberg. “If all these risks were to materialize, the risk of a recession [in Germany] would rise significantly.”
Germany’s economy flat-lined in the final quarter of 2018, according to official data released on Thursday, meaning the country just dodged a recession after GDP contracted by 0.2% in the previous three months.
Problems at home were partly to blame. The car industry took a while to adjust to new emission testing standards introduced in September, and unusually low water levels on the river Rhine disrupted logistics and delivered a knock to industrial output.
But these factors are now waning and the immediate fate of the German economy will most likely be determined around negotiating tables in Beijing, Brussels, Washington and London.
“It’s a bit out of Germany’s hands,” said Felix Huefner, an economist at UBS. “As long as the external environment remains weak, we do not expect a strong rebound.”
Still, there are some reasons for optimism. Trump has indicated he might be willing to let the China trade deadline slide. He could also take two or three months to decide whether to impose car tariffs.
And economists are still hoping the United Kingdom will avoid a disorderly Brexit, either by approving a divorce deal or by postponing its departure date from the European Union.
