Inside Track – October 2019

BRINO – Brexit in name only

The UK forthcoming general election (Dec. 12) won’t solve Brexit, but will put in place BRINO (Brexit In Name Only – an acronym coined by a FT columnist). As the destructive reality of what exiting the EU really entails kicks in, the next British PM (if it is Johnson) will leave the EU but will stay in the single market and the customs union until he finds a more suitable alternative. Since there is none, this means ‘an in-between’ situation (out but not completely) that will persist for years. Like Norway or Switzerland, Britain will then have no choice but to follow EU rules without having a seat at the decision making table.

A Looming water crisis

Asia has less fresh water per person than any other continent. We often forget that tail events drive the world: a few ‘things’ determine the majority of outcomes. Such is the case with water in Asia: bullish forecasts about the inevitable rise of the continent are blindsided by its looming water crisis. Asia is where more than half of the world’s population lives and already has less freshwater per person than any other continent. The lives of hundreds of millions will be negatively impacted by (1) the increase in extreme weather events combined with (2) the accelerating melting of Himalayan glaciers. Rising sea levels and reduced access to freshwater inevitably entail a cascade of risks destined to conflate with each other: impaired food production, increased geopolitical tensions and large-scale migration within and across borders.

De facto de-globalisation

Global growth is slowing in 90% of the world and global trade will grow below output. A few numbers help to put the whole picture into perspective: this year, global growth is slowing in 90% of the world and should not exceed 3% (compared with 3.6% last year): 1.7% in high-income countries (2.3% in 2018) and 3.9% in emerging economies (4.5% in 2018). Significantly, global trade will grow below output: around 1% compared to 3.6% last year, meaning that the world (of trade) is de facto de-globalising. Globally, USD15trillion of bonds now trade with negative yields. Systemically significant countries (Japan) and regions (Europe) have entered a monetary black hole: unable to provide positive returns to risk-free savings while falling short of inflation targets and growth at a time when financial stability is endangered by leverage and the search for yields.


Download the full report: October’s Inside Track