Will the global economy return to life after UK election, trade deal?
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FRIDAY, AUGUST 19, 2022
Will the global economy return to life after UK election, trade deal?

Analysis

Shakhawat Liton
14 December, 2019, 04:45 pm
Last modified: 15 December, 2019, 12:54 pm

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Will the global economy return to life after UK election, trade deal?

The global economy witnessed the shining Friday after more than a year

Shakhawat Liton
14 December, 2019, 04:45 pm
Last modified: 15 December, 2019, 12:54 pm
Will the global economy return to life after UK election, trade deal?

It seems that the sun has finally peeked through the clouds that gathered over the global economy since last year as a result of Trump's trade war with China and the doldrums over Brexit.

The big win by Boris Johnson in the UK election cleared the clouds over Brexit. Now, it is certain that the UK will leave the European Union smoothly by January, ending around a four years' long tumultuous situation.

The UK financial market seemed ready to welcome such an election result.

The pound surged more than 2 percent after Johnson's Conservative Party won the election. The Sterling reached a 19-month high versus the dollar, and its strongest levels against the Euro since shortly after the 2016 Brexit referendum.

More good news came on the same day.

China announced that it has reached an agreement on the first phase deal with the US to halt the trade war. Again, it seemed the market was ready to welcome the development.

US stocks hit fresh record levels on Friday after the news that the first phase of trade talks between the US and China had achieved major progress.

The news was also welcomed by other global markets that soared with the indices in China, Japan, Hong Kong and Korea, ending 1-25% higher on Friday.

The world's three largest economies—the US, China and the EU—have been suffering due to the trade war and Brexit. Many other global economies have also been bearing the brunt of the situation.

The trade war that began a year and a half ago has slowed global growth.  

But now, the important question is how long will the good times last?

The US and China announced on Friday that they reached a phase-one trade deal, but provided little details of the agreement.

Trump announced on Friday that negotiations for the next phase would start immediately, though his trade chief said no date for future talks had been set.

"The first phase leaves contentious issues unresolved, including US demands that China curb subsidies to state-owned firms. The US says future talks will also focus on digital trade, data localisation, cross-border data flows and cyber intrusions," says a Bloomberg report.

Many things in the UK also remain unclear, though the Brexit chapter is set to be over soon.  

Larry Elliott, economics editor of The Guardian, writes that the economy will almost certainly get a short-term boost, as it did briefly in the aftermath of the 1992 election.

Some of the investment that has been mothballed for the past couple of years due to Brexit uncertainty will be given the go-ahead. A strong pound will make imports cheaper and so stimulate consumer spending, he wrote on Friday.

"But it remains to be seen how long the bounce will last. Businesses are likely to remain cautious about capital spending until they know the shape of Britain's future trade deal with the EU," the Guardian's journalist writes. 

He also writes that "Those who have been left in despair at Labour's fourth successive loss can take some comfort from the fact that the mood was similar in April 1992. Within five months, the Major government had been overwhelmed by a crisis – the departure of the Pound from the European exchange rate mechanism on Black Wednesday – from which it never recovered."

Intriguingly, the global economy witnessed the shining Friday after more than a year, thanks to Trump and Johnson, the two leaders mired in deep controversy for many reasons.

Love them or hate them, but the truth is that the global economy breathed a sigh of relief because of their actions.  

Given that the clouds have gathered over the global economy, and Trump's unpredictable character, things will remain uncertain in coming days.

Therefore, the question remains: Will the sun that is peeking through the clouds shine on the global economy?

Economy / Top News

Global economy / Boris Johnson / trade deal / Trade War

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