The Domino Effect of Global Politics: A 2017 Forecast on Global Economy and Insolvency
Posted on 13th April 2017 at 05:15
The saying goes that China sneezes and the world catches a cold. In 2017, an epidemic of populism and economic depression is likely to see companies the world over feel the chill of global economics and restless politics.
The slowdown continues in the world’s largest market. Having been the largest contributor to economic growth every year from 2010 to 2013, any cooling of China’s trade and industry will be painfully felt elsewhere.
The problem for China is two-fold. The first issue is to find new markets for the huge range of products manufactured in the factories that fuelled growth over the last decade. The second is to manage the transition from manufacturing to service industries that the vast nation’s economy requires to sustain its successes. Countries such as Australia, Brazil, Canada, and Indonesia will be the first hit. They supply many of the basic commodities China uses to run its industries and slowing demand will hit their GDP.
Uncertainty in Chinese markets has also been shown to impact basic prices, such as oil and gold. Looking back over the past year, drops in orders of copper as a result of Chinese market adjustments have hit South America. Germany has been affected by declines in car orders. Meanwhile, Chinese local markets are developing fast and exporters such as Japan are being hit by the country’s growing capacity to meet its own needs.
This combination of falling demand for consumer goods and commodities, and the resulting sluggish global economic growth, will put pressure on the bottom line of many businesses. And not just the big ones; anyone that switches on a light, ships a package or looks to a favourable interest rate for company investment will feel the effect of the international slowdown in higher prices and increased caution.
With negotiations yet to officially start, the terms of the UK’s exit from the European Union (EU) are worrying investors and entrepreneurs.
Many companies in vulnerable areas were receiving EU funding to boost jobs and opportunities. At this stage, it's unclear if that will be sustained from sovereign British budgets. The removal of these subsidies could stop growth in its tracks; or worse, lead to revenue and operation shrinkage. Not all businesses would survive.
Trade terms between the EU bloc and an independent Britain will also be crucial. Any business with an interest in importing goods or exporting products could be hit by higher tariffs as these things enter the country and, more worryingly, higher costs for sending items out to Europe. Around half of UK exports (44.6% in 2014) go to EU countries. Problems in this supply line could push some companies under.
In terms of imports, companies that purchase in euros are already feeling the impact of the falling pound (down around 20% since the referendum result was announced.) These extra costs have to be dissipated; generally to the consumer. This, together with the likely fall in employment as companies operate cautiously while waiting for Brexit terms to emerge, will curb spending and depress the economy overall.
As soon as he entered the Oval Office, President Trump cancelled American participation in the Trans-Pacific Trade Partnership (TPP) which was to be one of the biggest trade deals ever done. This has set the tone for his presidency; protectionist and forceful.
British PM Theresa May has been quick to build trade ties with Trump and the UK economy may be sheltered from the storms created by his bold decisions. This is important as Britain relies on the export of services (as the second biggest exporter in the world) and much of that goes to the United States. Good ties are important for British economic consistency. Without big markets to get UK products into, insolvencies are likely as industries find themselves increasingly isolated.
The hallmarks of politics in 2017 are likely to remain uncertainty and listless growth. In this environment, knowledge is the power to make good business decisions. Creditreform has a 50-year track record in providing online and bespoke commercial reports for UK and international markets and businesses to ensure good information, good decisions and the best outcomes in turbulent times.
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