As 2019 ground to a close, things were looking up. That’s no longer the case.
At the end of the year, the three horsemen of the apocalypse – Brexit, the US-China trade war, and Hong Kong unrest – looked to have galloped on, leaving only minor destruction in their wake. The UK election results and phase one trade deal were Christmas come early for economists, and while Hong Kong’s woes continue, it’s unlikely they’ll set off an economic chain reaction in the Asia Pacific.
In fact, the only thing that could really have put a damper on things was a massive escalation in a simmering overseas conflict – something we got when most people were on the tail end of their NYE hangovers. There’s nothing like ushering in the new year with the killing of a leading figure in Iranian politics, and the death of Qassem Soleimani will likely lead to interesting times in the global oil market.
And that’s without going into the potential for the situation to escalate into the sort of prolonged low-intensity Middle Eastern conflict that the US just can’t stop fighting. If that happens, it’ll be another bumper year for military suppliers and contractors – and injurious in the extreme for consumer spending, which will suffer off the back of a spike in oil prices and the elevated risk of nuclear annihilation.
But that’s not all 2020 has in store.
While Brexit is now all but locked in following a landslide victory for Boris Johnson, the triumphant Prime Minister has set a breakneck agenda for completing trade negotiations with the EU. Mr Johnson is seeking to enact legislation that prevents any Brexit extension, meaning that trade negotiations with the EU will need to be completed by the end of 2020 to avoid a no-deal Brexit. This is sort of like Harry Houdini throwing away the padlock key before performing his infamous Chinese Water Torture Cell escape, and given the usually glacial progress of trade negotiations, Johnson is not out of the woods yet.
At the same time, while Donald Trump prepares to embark on the odyssey of a phase two trade deal, 2020 could see a massive expansion of the European front. In December 2019, US trade representative Robert Lighthizer indicated that tariffs previously imposed on $7.5 billion of European goods could just be the start, with the US now apparently weighing up 100 per cent tariffs on a number of agricultural goods, including cheese and wine. While that will have a disastrous impact on the European economy – and American wine importers – it will also force a lot of people to start drinking American wine, literally putting a bad taste in the mouths of millions of consumers.
And that’s without getting into the Japan-South Korea trade war, which is being fought over the former’s use of Koreans as slave labour during World War Two II – an issue a lot thornier than intellectual property rights and soybeans. The conflict shows no real signs of slowing down, with a potential long-term impact on the global tech supply chain.
Home is where the harm is
At the same time, bushfires have ravaged the east coast of Australia, with the long-term economic impacts still unclear. The bill for rebuilding is likely to run into the hundreds of millions, while Australia’s tourism industry could take a hit off the images of widespread destruction being broadcast overseas.
Australia’s major banks are also riding a fresh wave of controversy; Westpac has yet to pay out for its AUSTRAC scandal and could potentially have to launch another capital raise, while APRA and ASIC build cases of their own. NAB is partying like it’s 2017 with a fresh fee-for-no-service case, and has repeatedly signalled the imminent arrival of its own AUSTRAC enforcement in annual reports and at the AGM.
If 2019 was the year of rough patches, 2020 could be a rocky road indeed.