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Global Economy Forecast 2020

Brexit / Governments / Trading / January 1, 2020

Brexit will create the best opportunity the United Kingdom has had over the last 200 years.

In our opinion the Brexit information which was provided by the politicians and the media prior to 2016 was inadequate.

During the period running up to the referendum in 2016, the electorate were not presented with all the reasons why the UK joined the Common Market in the first place and what benefits it had expected to receive as a result of its membership. The Electorate were not presented with an analysis which highlighted the benefits of our membership nor were the difficulties and failures outlined.

For those of us who lived through the years of the UK’s EU membership will remember the significant differences of opinion about the future direction of the Union which were modified by a number of treaties. The UK in particular would have preferred that the Union should remain as a trading block whereas some other member states wanted it to be a political block.

As things stand at the moment the EU is due to transform into the United States of Europe in 2022.

In the intervening period the Remainers argued to remain inside the union, but did not analyse or forecast the future of the EU. On the other hand the Leavers argued the UK would prosper if we left the Union but they did not explain how or why we would improve our future by so doing.

So, what does the future look like?

There is no doubt that over the last 20 years the USA, China and the developing countries of the Far East have had far better economic returns than the EU. Their standards of living have improved, whereas the standard of living in the EU and the UK in particular has been little more than static.

1. The consequences of Trump changing the US foreign policies

There is also no doubt that the world currently has many more than its usual share of problems. In the USA President Trump has been impeached and his tariff disagreements with China, at the time of writing, have not been resolved. These are over and above the consequences of his changing foreign policies not only in the Middle East but also in Mexico and other South American countries. Although the USA’s economy is currently doing well, it would also appear that it may be facing difficulties in the future.

2. China has encountered a downturn in its growth rate and GDP

China has encountered a downturn in its growth rate which has been made worse by tariff disputes with the USA and the increasing competition from the South East Asian economies. This has resulted in a significant reduction in their GDP. To make matters worse China is now encountering the consequences of their one child per family policy. That policy changed the equal male/female birth balance to a 75% male births to 25% female births over a period of more than 35 years.

The current birth rate has been reduced because of the low female birth rate over that period, which will have a negative effect on its industrial output in the future. Some economists are now suggesting that it is unlikely that the Chinese economy will overtake the USA’s economy in the future.

3. Canada, Australia And New Zealand

Canada is likely to prosper although its economy is relatively small, whereas Australia and New Zealand are likely to be in decline due to climate change issues.

4.The Middle East

The Middle East is likely to be in decline due to its dependency on oil. because it must be phased out due to climate change. It also has the massive inter country political issues which are unlikely to be resolved in the near future.

5. The EU

The EU clearly is in a very difficult position. Countries such as Greece, Malta, Italy, Spain and Portugal have not recovered or fully recovered from the 2008 financial crash. There is serious political unrest in a number of countries such as France, Spain, Italy and Hungary to mention but a few. Some EU countries are refusing to comply with European law. It is currently very close to a recession and there is a significant risk that the Euro currency will fail due to Target2 imbalances.

6. South East Asia is likely to grow

South East Asia is likely to grow at an above average GDP rate but because they are a group of developing countries it will take time to affect the World Economy.

7. The Economies Of South America And Russia

The economies of South America and Russia are unlikely to change very much over the next few years.

8. The UK is about to re-enter the wider world

The UK is about to re-enter the wider world which is now a changing world. Why? because the EU currently exports more to the UK than the UK exports to the EU. It is likely that the EU will agree to continue to trade with the EU on mutually acceptable terms. However, the total value of that trade between the UK and the EU is likely to decline.

9. The Brexit politicians suggest that the UK will prosper because it will enter into trade agreements with USA and China, together with countries with trade agreements which have already been signed up and with additional countries where trade agreements are being negotiated. However, both the USA and China (to a lesser extent) have fully developed economies. Selling to those countries is possible but the UK will be up against strong local competition and competition from other developed countries. Of course, they are major markets but they will be difficult markets to penetrate.

10. But there is another market which has not been highlighted by the Remainer’s or the Brexiter’s. The Commonwealth is a voluntary group of 53 countries, most of which were British Colonies. The countries within the Commonwealth currently cover approximately 20 percent of the world’s land surface and they are the home of a third of the world’s population (This amounts to 2.419 billion people of which 60% are under the age of 29.)

The Commonwealth Provides The Greatest Opportunity For Exponential Growth UK Has Had in 200 Years

This should be compared with the UK’s population of 67 million, the EU’s population of 513 million, the USA’s population of 329 million and China’s population of 1.42 billion. Potentially the Commonwealth is a much larger market than the EU market.

Corruption in the Commonwealth is a serious problem, but to a greater or lesser extent it is also a world problem. However, throughout the Commonwealth a large majority trust the UK and would like to re-engage with the UK..

During the period between the 1st and 2nd world wars the UK began to lose its trading relationship with the Commonwealth countries. That relationship all but ceased when most countries became independent.

Currently China is the biggest supplier to the Commonwealth countries largely because of the credit they provide on major construction projects. Most Commonwealth countries do not trust China and they would prefer to buy from the UK. Because of the financial support which can be arranged through the Dept of International Trade, UK suppliers will now be able to compete with China on a competitive basis.

Currently, about 25% of the Commonwealth Countries have GDP growth rates above 7.5% and the average growth rate is above 3.5%. Since 1973 the economic growth in the Commonwealth has accelerated which is in sharp contrast to the EU, where the growth rate has been falling gently from an average of 3.6% in the 1970’s to only 1.7% in the past five years it is expected to be about 0% this year.

The trading opportunities with the Commonwealth are enormous, but trading in the Commonwealth is different. Corruption is a significant hazard and hard currency is difficult to come by. It is difficult to do business in the Commonwealth countries if you do not have experienced traders working with you in each country in which you wish to do business.

Many British companies do not succeed in Commonwealth countries because they try to sell directly to companies. If they work with experienced traders who in turn know government leaders as well as the end user company then the business is much more likely to develop.

These difficulties put many people off, but they are the vital steps to take to overcome most of the problems..

If you would like to learn more about trading with Commonwealth countries please contact us.

Photo by Adeolu Eletu on Unsplash