The US-China trade war poses the biggest current threat to the global economy, according to new research from the Economist Intelligence Unit.
The EIU put together a list of the top 10 risks the global economy is facing in 2019, and researchers said “the combination... is more wide-ranging and complex than at any point since the Great Recession”.
Topping the list is the chance that the trade conflict between the US and China could “morph into a full-blown global trade war”, and could also become a “technological arms race”.
Markets were boosted on Monday with news that the threat of a US-China trade war might by avoided, after Donald Trump agreed to extend a truce over $200bn (£153bn) worth of tariffs on Chinese goods over the weekend.
However, the EIU’s researcher’s noted that while this decision “will avoid an escalation in tensions for now, a full-blown trade war between the US and China remains a significant risk to the global economy, owing mainly to the fact such a deal will lack the necessary enforcement measures to ensure Chinese commitment to the structural reforms demanded by US negotiators”.
The second biggest risk identified by the EIU is the potential for the US’s corporate debt burden to turn a downturn into a recession, which would “greatly exacerbate a global slowdown”.
At number three is the threat of China suffering a “disorderly and prolonged economic slowdown”. “Given the growing dependence of Western manufacturers and retailers on demand in China and other emerging markets, a disorderly slump in Chinese growth would have a severe global impact - far more than would have been the case in earlier decades,” the report says.
A no-deal Brexit comes in at number seven, tied with an Italian banking crisis.
If the UK leaves the EU without an agreement in place, the EIU has forecast a “sharp depreciation in the value of the pound and a much sharper economic slowdown in the UK than we currently forecast”. The impact on UK and EU trade and investment is likely to “prove sizeable enough to dent global economic growth”.
“In light of rising geopolitical uncertainty, broadening economic headwinds and technological shifts in the security landscape, the risks facing the global economy are as wide-ranging and complex as they have been since the Great Recession,” said Nicholas Fitzroy, the EIU’s risk briefing director.
“Combining all three of these trends, a potential escalation in the US-China trade war is the primary threat to global growth, with the possibility that a number of other countries could be sucked into the conflict.”
