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Three wildcards of Hegemonic Shift in 2019
After a fickle year dominated by the trade war and populists taking power, 2019 has the makings of a year of uncertainty. However, there is reason for optimism as three events are developing under the radar. The first is new momentum for China’s Belt and Road Initiative. The backlash against Chinese influence will increasingly confine itself to the U.S. While countries such as Malaysia, Pakistan and Brazil criticized China in 2018, they will mainly seek a better deal from Chinese projects. Secondly, the melting icecaps of the Arctic will turn Greenland into a strategic hub where several countries – Denmark, Norway, but also China and the U.S. – shall want to establish their influence to benefit from strategic and commercial opportunities. While conflict is likely, new unity among countries will also emerge in the Arctic, for instance, through the Arctic Council. Finally, two key Asian countries, India and Indonesia, have elections this year. Re-election of reformist leaders Modi and Widodo will allow them to implement more necessary reforms. While uncertainty might haunt 2019, events like these may spark optimism across the globe.
Signs of the next Green Revolution
In the 1950s and 60s, the Green Revolution transformed agriculture with fertilizers, pesticides and high-yield crop varieties and tripled the world food production in half a century. However, the productivity gains from this revolution are plateauing amid accumulated environmental problems, such as soil erosion, water pollution, and biodiversity loss. This year, the world will suffer from more food insecurity, food shortages, food-fueled unrest, and migration due to hunger. A new Green Revolution is needed and three developments indicate an agricultural transition to increased production in a sustainable manner. Based on measuring and monitoring site-specific needs, precision farming reduces the use of pesticides while enhancing production. It gains momentum by the declining costs of sensors and growing availability of real-time data for farmers in developing countries. Related is the development of intelligent farming solutions, deploying AI, machine learning and digital platforms where farmers share insights, such as the Google for farmers. Finally, climate-smart agriculture adapts farming to climate change while mitigating environmental impacts, such as saline agriculture techniques. These techniques can de-risk investments in agriculture and help food-insecure regions.
Late-cycle dip or a recession?
At the end of 2018, the ‘Goldilocks’ scenario of synchronized and broad-based accelerating world GDP growth, coupled with low inflation, low interest rates, and low volatility was broken for the first time since 2009. This might indicate a late-cycle dip or the advent of a recession. One of the telling indicators will be the pace and change in world GDP-growth. The mounting global debt levels may further increase the risk of a recession. To sway capital markets, the monetary policy of the central banks will be a determining factor. If interest rates rise too much too fast, or the worldwide pool of liquidity is being curbed too much, this can lead to periods of sudden serious disruption, big downdrafts and high volatility on capital markets. While an equity market decline might indicate a recession, this is not a perfect predictor. According to economist Paul Samuelson, the stock market predicted nine of the past five recessions. In the other four cases – quipped WSJ editor Robert Bartley – Washington [e.g. The Fed] got the message and mended its ways in time.