The geopolitical developments and the currency conflict are affecting the global economyTruth Consultancy
Uncertainty and ambiguity are creating uncertainty and anticipation among investors
Date Published: Saturday, 22 April 2017
Abu Dhabi (Al Ittihad)
Economic experts said that the global economy is facing many risks during the current period and the next few years, as a result of a simultaneous and continuous quadrant that includes American policy, geopolitical developments, French presidential elections, German legislative elections and the implementation of the British exit from the European Union.
In the Chinese move, and in the use of the available papers, they hope to stem those dangerous repercussions, first and foremost the US threats to North Korea or reduce their effects.
“The next few years will witness the impact of the Trump economic policy around the world, particularly in terms of international protectionism and the risk to the Chinese, German and Japanese economies of large losses as a result of the new US economic policy with fears of a US strike on North Korea will negatively affect South Korea, .
For the first time since 1981, the French presidential election is causing great concern in the markets. Investors fear the success of Marin Le Pen, the leader of the National Front Party, by winning the French presidency on Wednesday, reinforcing the rise of populism throughout Europe and reflecting the severe damage to the economy and life.
Experts have played down concerns about the rise of the extremist movement in Germany at least during the current elections, but they have not ruled out any surprises that may occur as a result of escalating terrorist acts and growing populist movement.
Waddah al-Taha, a member of the National Advisory Board of the Chartered Institute of Securities and Investment, said: “The tough tone that President Trump has used since coming to power has raised the level of geopolitical risk, which has led to increased investor reluctance and caution, On the movement of the economy either from the launch of projects or provide employment opportunities and achieve resources as a result of taxes and increase unemployment rates and the reflection of all this on various aspects of life.
“We are facing a new kind of risk that we have not seen before, and the indicators of these risks are beginning to emerge through psychological infection of investors in various markets,” he said in remarks to Al Ittihad in Abu Dhabi. “Now the solution is in the hands of China, Is directly reflected on the economy. In the forefront is the crisis between North Korea and America. China’s banking system is the only system in the world that Korean banks are dealing with, and he believes that US protectionism will exist, but not so much except energy.
China is looking at the long term and is using the North Korean paper as a political pressure tool to reach an agreement not far from the current economic agreement between China and the United States, especially with respect to Chinese exports. There is no more influential force on North Korea than China, South and Africa.
Trends of Trump
ٌRida Musallam, an economist and general manager of TruthEconomic Consultancy in Abu Dhabi, pointed out that Trump’s political orientation is directly and rapidly reflected on the global economy, both in terms of the use of sophisticated weapons in areas of conflict or escalation of the threat with North Korea. Trump is focused on the element of surprise and unexpected decisions, which is causing fluctuations in global markets and negatively affects the direction of investors and raises the degree of caution that exists now.
“The completion of the British exit from the European Union will lead to a decline in the value of the sterling as a continuation of the decline against the dollar following the results of the referendum in favor of exit from the European Union,” said Muslim, adding that British investors will exit from Europe and head to the Gulf.
He pointed out that the results of the French presidential elections will have a significant impact on the future of the European Union, either continued or separated from him, and what strengthens the opportunities of the extreme right high unemployment, terrorism and the problem of immigrants, the same reasons that led to the Brikst.
Opportunities for success
On the repercussions of the German legislative elections in September, Muslim reduced the chances of the success of the Nazi movement, stressing the continuation of Germany in the European Union and protect the Union from collapse from a political and economic point of view.
Dollar in two directions
“On the currency front, the US dollar is moving in two directions at once, but different and competing at the same time,” said the Office of Strategic Studies at EDS Securities, a major financial services firm. The first trend gives the dollar the natural strength it has to gain from the strong economic data coming from the labor market, which has a 4.5% unemployment rate not seen since 2006, rising wages and a low percentage of job seekers.
“Companies are facing the challenge of filling vacancies, especially professional ones. The US Department of Labor indicates that there are more than 1 million job vacancies for qualified and advanced employees, only 800,000. This is a historic and standard rate for the US job market, To the rising purchasing power and spending of the American consumer, which doubled two years ago, which reflected positively on inflation rates, which reached the point of targeting the US Federal prices ».
“Together, these factors have created a new reality for the Fed that has pushed interest rates up twice since December and is now raising twice again in 2017.
“It is normal for the US dollar to take an upward path, which is originally superior to the major currencies by 20%, but if we look at what happens in the second direction, which is negatively impacted by the US dollar, we see that the picture is completely different. “The balance has changed and the US dollar has changed completely against the reality of the first trend.
Trump’s economic plan consists of seven main axes: Infrastructure spending, tax cuts, balancing the US trade deficit, charging customs duties on foreign goods to encourage domestic industry, revising trade agreements with countries that are key trading partners of the United States, Obama Care, amending the Dodd Frank Financial Act and reducing restrictions on banks to have flexibility in financing government and private projects.
In this reality, Trump can not apply this plan and the US dollar is high. He needs a weak dollar as a prerequisite to succeed in his economic policy, which he has recently made clear that the dollar has reached strong levels and does not meet the requirements of the US economy. Prefer low interest policy.
The question here is: How will the US Federal Reserve agree with it, and will there be harmony between the Fed, which prefers to raise the benefits in line with the strength of the economy, or will take into consideration the supreme interest of US public policy, which can face many challenges and difficulties in implementing them? Bill to cancel the «Obama Care».
Gold Safe Haven
Nizar Aridi, an expert on strategic economic affairs, said: “Global markets are cautiously awaiting the geopolitical tensions in the US-Russia relationship and the US threats to North Korea. Here safe havens were the biggest beneficiaries, especially gold, which has not seen gains since November 2016. As well as the Japanese Yen, which appreciated against the USD and other major currencies. ”
“The European election is also becoming foggy and uncertain. Tomorrow the French elections and opinion polls indicate that the extreme right-wing candidate Marin Loben was in the first round, the biggest threat to financial markets because Le Pen is clear in its extremist policy that does not recognize the euro currency and wants to get France out of the European Union. ”
These fears coincide with the September elections in Germany. Right-wing parties opposed to the EU began to appear and could pose a threat to the loss of German Chancellor Angela Merkel. In addition, Britain’s exit from the EU, the first practical challenge to the EU’s future,
If there is a smooth exit and the European and British sides are satisfied, these fears can be eroded. But if there is a difficult exit and Britain loses its financial position as its economic pillar, it can change its economic model to focus on the free economy and become a tax haven attracting investments and capital to recover. Its financial position Here this scenario will be negative on the euro zone and specifically the common currency.
Argentina meeting outlines “protectionism”
The World Trade Organization (WTO) ministerial meeting in Argentina in December marks a fundamental and historic stage in the life of the organization to find out the “trade protectionism” that the US administration intends to implement. The world is watching the American tackles with the political and economic tensions that are produced from time to time, Concerns about the economic recession and the prospect of a severe crisis as a result of the shadow of what is feared to be a trade war between America on the one hand and China, Canada and Europe on the other, under the banner of “trade protectionism of the American economy” New.
The application of protectionism will lead to a radical change of the global trading system and will face fierce opposition from Europe, China, Japan and Canada, so broad tariff protection can only be applied by withdrawing from the World Trade Organization. Trump points out this possibility.
The question is about the beginning of a new economic crisis that will not only affect the big countries of China, America, Europe, Canada and Mexico, but will also cast a shadow over the world. Monetary policies and customs measures that lead to inflation necessarily lead to higher interest rates. On the one hand, and the worsening of debt service on the other, then consumption is falling all over the world, growth is falling, unemployment is rising and poverty is rising. In accordance with multilateral trade agreements, commercial operations based on illegal competition can not be carried out. States have no right to resort to dumping, ie to export a commodity at a price lower than its price in the domestic market. In the case of dumping, the importing country is allowed to impose high customs duties. To grant subsidies for their exports. In the case of such subsidies, the importing State may impose compensatory duties.
In all cases, it is assumed that the affected State (imported) should not take unilateral action, but should resort to the WTO Dispute Settlement Body to obtain a decision to increase customs duties under those agreements.