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Economics in 2019

We review the main developments in 2019 as it comes to a close


Overall, 2019 has been a steady year for global economies and financial markets, but nothing exceptional. There has still been no recession for 11 years and for most investors this steady growth will come as a relief. Regional problems remain for example in Argentina and Zimbabwe, but there is also a mellowing of problems in Venezuela and Argentina. Japan remains the slowest growing region at 0.4% , but the rest of Asia is growing strongly at 5.2%. Western Europe and North America are growing at 1.4% and 1.6% respectively.

Fastest growing economy. Going into 2020, hopefully the economy will global economy will grow steadily and we will avoid an economic downturn, but this article will look back at 2019 and explain some of the main economic developments.


Fastest growing economy:

Guyana: 35.0%

Why?

Guyana is a small South American country with a population of approximately 780,000. It is relatively poor with a GDP per capita of $8,300, but has great opportunities for oil exploitation. Furthermore, the IMF predicts a growth rate of 86% in 2020. This is because Guyana started oil production in December which is expected to produce huge revenues. Especially since it is thought that Guyana has the most oil per person of any country in the world. They have twice as many barrels of offshore reserves per person than Saudi Arabia. However, there are also fears of political instability and sudden inflows of oil revenue could cause the currency to rise in value too much.


Slowest growing economy:

Zimbabwe: - 12.9%

Why?

As a highly agricultural-based society, Zimbabwe has suffered greatly from severe droughts which has led to humanitarian warnings from the UN. This means unemployment is increased and incomes are falling. The introduction of a new currency led to fears of hyperinflation and further shortages as suppliers cannot keep up with demand. Aid is expected to stream into the country in 2020, however the terms of any finance will be restrictive so the economy will probably remain in severe recession.


Biggest currency fall

Argentina (-36.0%)

Why?

As well as having the largest currency fall Argentina has also had the world’s highest inflation of any major economy in 2019 of 52.1%. They have suffered recently from high inflation due to successive populist governments printing money to finance wide budget deficits. Inflation causes a flight of capital especially in emerging markets. A flight of capital causes a currency depreciation which in turns causes inflation which creates a cycle of currency depreciation. For Argentina which has run budget deficits for decades, this poses a particular problem because it makes foreign debt harder to service. Argentina have continued to elect populist leaders such as Alberto Fernandez who pledge to undo the pro-market reforms of President Macri. There has been little change in Argentina from a year ago, although Turkey who were in a similar situation in 2018 have fared much better in 2019, although they are by no means out of trouble.


Best performing stock market

Russia RTS (42.6%)

Why?

Moscow Financial District

As interest rates continue to be low, investors have adopted to invest more in riskier emerging markets such as Russia. Part of this surge is a recovery from 2018 when stocks only rose by 0.5%, but the rest largely comes from a delay in US and EU sanctions which has expanded business opportunities and opened up new sources of finance for Russian companies. Also, a relaxed attitude from US lawmakers has increased confidence in Russia’s financial markets. Furthermore, rising price of crude oil benefits those many Russian companies which are the foundations of their economy. A higher price means greater revenue for Russia’s colossal oil extracting firms.


Worst performing stock market

Malaysia KLSE (-6.7%)

Why?

Despite strong performance from other emerging market stock markets, Malaysia has suffered a loss of $2bn from its stocks in 2019. There is substantial political turmoil as the 94-year old Prime Minister, Mahathir Mohamad, face an ongoing threat from the opposition coalition and there is tensions over who would succeed the ageing Prime Minister. Political problems have been accompanied by depressing macroeconomic data; the economy only grew by 4.4%. However, there could be reasons for optimism ahead as the government plans fiscal stimulus in the coming year.

Best stock performer

JD Sports (135.6%)

Why?

They are a fashion-retailer specialising in sports clothing. They operate globally including in Asia, Europe and Australia. Despite national concerns over the condition of the retail sector JD Sports generated a lot of excitement this year with ambitious expansionist plans internationally and they opened 23 new shops in Europe and 7 in Asia Pacific. This is part of a longer term trend, since the share price has risen seven-fold in the last five years. They have a diverse product range, but have a particular focus on being the ‘King of Trainers’, which is a growing market with millennials.


Worst stock performer

NMC Health (34.7%)

Why?

They are a healthcare distribution businesses based in the United Arab Emirates, but they manage over 200 facilities within 19 countries. They operate an international network of hospital, but also they do wholesale trading in pharmaceuticals and other medical equipment. Performance for this company was particularly poor which emphasised their poor annual performance. They suffered an immediate shock as the hedge fund Muddy Water’s produced a reported which questioned the health of the company’s statement



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