Four ‘extraordinary political mistakes’ could cause market chaos in 2019

Jan 07, 2019
Berenberg warns of developments but expects less negative narrative

Four ‘extraordinary political mistakes’ could cause market turmoil in 2019, according to Holger Schmieding, chief economist at Berenberg Bank. 

The four are:

  • Italy’s radical government could plunge the country into a genuine Greek-style debt crisis
  • Britain’s mostly pro-EU political class could simply let the train roll over the hard Brexit cliff instead of using the 10 weeks between the likely death of the current Brexit deal and Brexit day on March 29 to stop it through a softer Brexit option or a new vote to stay in the EU
  • President Donald Trump could hurt the US economy and impair his chances of re-election in late 2020 by going too far in his costly trade wars in 2019
  • China could let a hard landing happen instead of using its ample policy toolbox to smooth the inevitable slowdown in cyclical momentum and trend growth.

Schmieding thinks events may not reach such a fever pitch, however. ‘For example, Italy’s budget passed, showing that the EU and markets have imposed some rudimentary discipline on Rome,’ he says in an investment outlook statement. 

‘Separately, Trump’s latest musings on progress in talks with China support hopes that both sides will try to strike some deal in the coming months even if some of the thorny issues between the geostrategic rivals will probably not be fully resolved for many years. 

‘Chances are that, after a rocky start to the New Year, a less negative narrative can unfold later in 2019. What we may have to fear for 2019 is fear itself and the risk of extraordinary political stupidity well beyond the usual mishaps of life.’

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