David Rubenstein needs no introduction. A regular star draw at SuperReturn, it was standing room only with those eager to hear his thoughts on the global economic and geopolitical developments to watch in 2019-2020. In case you missed it, here it is in a nutshell.
The global economy and slowed growth
In the US, the economy is slowing; hurt a little bit by the government shutdown and the diminishing impact of President Trump’s tax stimulus. Interest rates are not likely to move, at least until September, but even then, a rise is unlikely.
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The US budget deficit was a greater cause for concern, as its upward trajectory is now approaching 100% of GDP, a fact that had many economists worried. In addition, despite Trump’s best efforts, the US trade deficit is also increasing.
Recession fears were and are well-founded: ten years into a growth cycle is a highly unusual situation to be in, as everyone knows. The US was experiencing 115 months of growth, just six months shy of the record. “I’m not predicting a recession, just saying that some people say we can’t go on forever in this way. Some people say think that in 2020 things won’t be as good," Rubenstein commented.
Across the Atlantic, Europe’s growth rate was likely to slow more than the US while interest rates were still reflecting quantitative easing: “Europe is spending €1.3m a minute to keep QE in place, if interest rates were to go up, it would likely push Europe into a recession.”
Inflation was also lower in Europe than the US, as was the unemployment rate. As for Europe’s recession prospects, “many would say that Europe had a more likely prospect of going into recession than the US," said Rubenstein.
China’s official growth rate is 6.6%, “though many believe it is closer to 5%”. Either way, growth is slowing. The unemployment rate “basically stays the same” and China is unlikely to go into a recession, however.
Geopolitical risks and developments
There was a lot of talk about resolving the US/China trade dispute and progress is indeed being made, with an agreement likely in the next few months.
Regarding Brexit, the only solution Rubenstein could see was a second vote: “the first vote was not relatively informed, it wasn’t clear what Brexit would really mean,” but he didn’t think anything would be resolved by the March 29th deadline. He wasn’t in doubt, however, that Brexit would “really hurt the UK economy”.
The Iran nuclear deal will stay in place despite the US withdrawal, and in the Middle East there was little prospect of a peace deal any time soon. In Venezuela, he did not believe that anyone was sufficiently motivated to storm in with boots on the ground. At some point, the country’s dire economic situation will force a change.
The US was not going to pull out of NATO, and with regard to the Paris Climate Agreement, he reminded us that the US does not technically withdraw until the day after the next Presidential election. The USMCA, NAFTA’s replacement, is also yet to be approved by Congress, and although this is possible, it wasn’t a done deal.
On sanctions on Russia, Rubenstein did not see any political reason why sanctions would change. In North Korea, and despite the second summit, he didn’t think there will be any dramatic change, but we are not going to see any denuclearization any time soon.
Looking towards future evolution
One thing that does concern Rubenstein greatly is the rapidly ageing population in the US and Europe. By 2035, people age 65+ are projected to outnumber children under age 18, for the first time in U.S. history.
"...With regard to the Paris Climate Agreement, [Rubenstein] reminded us that the US does not technically withdraw until the day after the next Presidential election."
Wealth inequality in the US is getting worse; the rich have become richer while the poor have “gone under water”, in Rubenstein's words.
Meanwhile, the world continues to pile on debt – now exceeding 318% of world GDP, and entitlement spending in the US and Europe is also going up.
On climate change, the facts spoke for themselves: “I don’t know how many of you believe in climate change”, he said, “but the last 18 of the last 19 years were the warmest on record.”
And finally, what of the next presidential race? There are so many candidates, he said, tongue-in-cheek, that he was almost embarrassed not to have his hat in the ring.
It was impossible to predict so far out, he said, but left us with this little nugget to chew on – most presidents who run for reelection get reelected.