Economy Watch: It's time to look at the global challenges outside Brexit
By Jordan Buchanan, economist at Ulster University Economic Policy Centre
The economic narrative across the UK and Northern Ireland continues to be dominated by ongoing Brexit uncertainty as to what the future trading relationship with the EU may look like.
Brexit, however, is only one of the challenges facing the UK. Much political attention has been devoted to the negotiations and perhaps rightly so, but it is also important to look outside the Brexit lens and pay some attention to the wider economic challenges facing major economies across the world.
The global economy has performed reasonably well in recent years, showing continued expansion since 2016, and the latest forecast from the International Monetary Fund (IMF) is for growth to continue at similar rates.
However, downside risks are increasing and the potential for favourable surprises may be receding. The global recovery, whilst remaining fairly robust has become less evenly balanced, and may have peaked in some major economies. The trend towards increased protectionism poses the most immediate threat to global growth, confidence, asset prices and investment.
Furthermore, oil prices have increased by more than 50% in the last 12 months which has boosted the economic prospects of oil rich nations but has created inflationary pressures in advanced economies.
USA: Economic growth is strong, private sector confidence remains high and unemployment is at 50-year lows, driven by robust consumer spending and continued fiscal stimulus through lower taxes.
A strong US economy has supported increased global trade on the back of stronger domestic demand. However, monetary policy is expected to continue to tighten in the coming year, ongoing trade disputes with China are mounting alongside an aging workforce, and slowing productivity growth may lower economic growth in the medium term.
The IMF forecast economic growth to average a healthy 2.4% per annum from 2018-2020, before falling to a modest 1.5% per annum from 2021-2023.
Eurozone: The economic performance has been generally positive which has led the European Central Bank to announce an end to its quantitative easing programme at the end of this year, although maintaining its commitment to low interest rates until the end of 2019.
Economic growth has slowed this year, partially due to escalating global trade tensions and rising oil prices, making net exports negatively contribute to growth.
Support was provided by higher consumption and investment as labour markets improved alongside low costs of borrowing.
The eurozone's performance is heavily reliant on growth in Germany, France and Italy, with each facing their own challenges:
Germany: The economy is performing well but faces a shortage of skilled workers, and growth has been revised down by the IMF to average 1.5% per annum by 2023.
France: The economy is facing a combination of relatively higher unemployment, almost no growth in living standards in a decade (as measured by GDP per head) and the public finances are stretched with amongst the highest spending ratio in the G7. The IMF forecast growth averaging 1.6% per annum by 2023.
Italy: The new populist government has had its draft budget for spending rejected by the European Commission in Brussels in an unprecedented move and for the first time in the Eurozone's history.
If the Italian Government refuses and sticks to its campaign promises, it may face sanctions. However, if the European Commission allows the Italian government to sidestep the fiscal rules, it will undermine the integrity of the Eurozone and risk a backlash from other EU leaders. The IMF forecast Italy's economic growth of only 0.9% per annum by 2023.
UK and Northern Ireland: A stronger global economy and competitive sterling exchange rate helped support UK exports and inbound tourism last year. Indeed, the UK economy posted a reasonably strong 1.8% growth, outperforming expectations.
However, growth has slowed in the first half of this year with much of the poor performance being attributed to a combination of Brexit-induced uncertainty and the poor weather conditions.
Despite a strong labour market, the economy has experienced no significant pickup in living standards and productivity, wages are lower than 10 years previous and economic growth this decade is on course to average the worst decade for 80 years or the second worst in 200 years.
Brexit remains the most immediate risk. It will be important that a beneficial trading arrangement is negotiated, given an increasingly fragile global environment.
Finally, and not to be overlooked, Northern Ireland's structural economic challenges of high inactivity and lower productivity should be kept firmly on the radar. Brexit is a challenge, but it is not the only one, locally or nationally.
Additional commentary by Dr Esmond Birnie. In next week's Economy Watch, we hear from Andrew Webb of Baker Tilly Mooney Moore