A look back at the key events of this year.
As another year is around the corner, we thought it would be a good idea to take a look back at some of the most important developments in 2018, since the future is always influenced by the past. Here are some of the major topics that had investors at the edge of their seats this year.
Hardly anyone would argue that the trade war that Donald Trump started by unilaterally imposing tariffs on imports from other countries is likely the most defining event in terms of economics in 2018. With countries responding with tariffs on their own in retaliation, most notably from China, this year’s trade wars officially began. The full impact of the trade dispute is far from clear, but even a few months into the tariffs, growth started slowing down globally, struggling markets suffered even worse losses, and the demand for oil dropped as industrial activity staggered.
The United States and China agreed to a temporary (90-day) truce to last between January and March 2019, during which they would not impose further tariffs on each other and focus on negotiations instead. However, as the two countries engaged in such talks on and off multiple times in 2018 to no avail, investors are not exactly optimistic about the two leading economies managing to resolve all of their crucial differences in such a short amount of time.
The Crisis of Developing Markets
Developing countries such as Argentina and Turkey had a very rough year. As is the case with many such economies, they have large international debts in USD. But with the economic climate improving constantly in the United States, the Federal Reserve had to hike rates four times this year alone. This led to a very strong dollar, making developing countries’ debts worth way more than they used to be. Argentina had to ask for a bailout by the IMF, while Turkey’s lira crashed dramatically.
Even stronger economies, such as Europe’s Italy and France, have a dark shadow of stagnant growth looming over their shoulder in this economic climate.
The issue of the United Kingdom leaving the European Union has been on investors’ minds for over a year now, but with the March 29 deadline approaching fast and no deal in sight, it has become a particularly hot topic. The UK’s Prime Minister Theresa May even survived a vote of no confidence which came after she delayed the vote on the deal she negotiated with the European Union, once it became clear how strongly the UK Parliament opposes this agreement. The EU has not offered anything better and a vote on this deal will happen in January, though a win is not likely. In that case the United Kingdom will have 21 days to offer a new deal. Nevertheless, the European Union has been firm in their terms, so there isn’t much else the United Kingdom might bring forward to the discussion table that the bloc might consider.
The biggest problem with Brexit has been that the politicians pushing for the leave vote expected to have a perfect Brexit, negotiate the best possible conditions whereby the United Kingdom gets to enjoy the benefits of the EU (free access to their single market, etc.) without any of the negatives (free movement of people), which was never a real possibility in reality. The European Union wants to make this divorce difficult to discourage any other member states from thinking about leaving.
At this moment in time, a no deal Brexit seems the most likely. This makes the United Kingdom a major source of uncertainty in Europe.
Oil Prices Collapse
Oil prices were climbing steadily in 2017 and this year managed to reach levels from 2014 near $80. However, the lower demand due to the economic slowdown in many countries and the trade war between the US and China, as well as the United States’ continued effort to increase oil production led to another state of oversupply on the market. OPEC members managed to agree earlier this month on another production cut, but unfortunately, this did not stabilize prices much. This week oil slumped below $50, undoing most of the hard work of the past two years to increase oil prices.
In other words, 2018 was quite a busy year, but it seems many of the trends started this year are yet to produce results, so we need to look to 2019 for their resolution.