The world economy, contrary to the prediction of the economists and investors, has stepped in 2018 by establishing a strong foothold. Deflation is no longer a matter of concern and every sphere is witnessing steady growth. Even though the world economy exudes positive vibes, there are many things which could go wrong.
Will the U.S. Federal Reserve Make a Policy Error?
Janet Yellen had been successful in handling the start if the balance-sheet reduction and the three-interest rate increase. If unemployment keeps exceeding the forecasts made by Fed and inflation causes a delay, the situation might get tensed. In inflation emerges, the Fed might have to take out some insurance policies which have high interest rates than expected. This decision will turn out to be a blunder because it will confuse the investors if their asset-price assumptions are fixed on low rates.
Will the Economy of China Hold up?
Due to global buoyancy, the economy of China did not hold up as predicted. A large section of economists have predicted that the economy of China will slow down in 2018 because the government is encouraging the state-owned companies to reduce the burden of their debts. China continues to play a major role in the global prosperity because the predicted debt implosion has not taken place. Liu He is the economic advisor to President Xi Jinping and he has accumulated a lot of power over the policy apparatus. It will not be surprising if a new Central bank governor is selected.
Will There Be Stiff Competition on Corporate Tax Rates?
The corporation tax rate was fixed to twenty-one percent by the U.S. president Donald Trump. The reduction in the corporate tax rate might tempt the other developed countries into reducing their tax rates. Tax cutting belongs to the expansionary shift in the global fiscal policy.
Will Trump Be Provoked?
The presidential election of Mexico can pose a threat to the North American Free Trade Agreement because the White house is ambivalent. The leftist candidate for the Mexican presidential election Andres Manuel Lopez Obrador is ready to be at par with Trump in the social media. Trump might get provoked and he can announce the discontinuation of the trade pact. If the U.S. backs out from the trade pack, a few farm-based states might get severely affected.
Will Politics Hinder Growth?
The election preparations are taking place in full-fledged manner in Indonesia and Malaysia. Political Islam is trying to establish their foothold in the historically secular countries of Malaysia and Indonesia. The local elections of Indonesia will precede the Presidential elections which will be held in the following year. The Islamist groups are trying to oust the reformist governor and they also have the power to make the people protest violently. In Malaysia, the Malays are trying their level best to win the election so that they can protect the Islamic institutions and themselves.
The scenario of the world economy will witness numerous changes in 2018. What are your views regarding the matter?