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07 Mar 2019

Exclusive interview with Dr Ira Kalish

Exclusive interview with Dr Ira Kalish
An interview with Dr Ira Kalish, Chief Global Economist, Deloitte

Q: In the Global Powers of Retailing report, you stated that you thought the global economy finished 2018 at a turning point and could be entering difficult times. This is in contrast to the optimism we felt during the first half of 2018. What has happened to cause this worrying shift?

A: Three important things happened.  First, the economies of Europe and China decelerated considerably.  Second, the US economy appears to be facing headwinds, generated by tighter monetary policy and trade uncertainty.  Third, fraught trade relations have hurt the global economy.  Tariffs have caused a slowdown in trade flows.  Plus, uncertainty has had a chilling effect on business investment. 

Q: Since the report published in January, a lot has happened across global politics and economics. Have recent events made you more, or less, optimistic or pessimistic and why?

A: Both.  On the positive side, it appears that the US Federal Reserve has paused from its policy of tightening monetary policy.  Plus, at the time of this interview, it appears that the trade war might not necessarily worsen.  On the negative side, however, it is clear that the economies of Europe and China have decelerated faster than previously expected.  The Chinese deceleration has spilled over into other East Asian economies.  Plus, credit conditions in the US have worsened, with higher risk spreads and weakened activity. 

Q: The US economy has appeared to be performing strongly and retailers have been benefitting. Do you see 2019 being another strong year for the US economy?

A: No.  By the end of 2018, it was clear that consumer spending was worsening.  US government data indicated that household spending and retail sales both fell sharply in December.  The economy is already at full employment and facing several headwinds.  Thus, it makes sense to expect slower growth at best, and possibly even an economic downturn.

Q: There is a lot of talk about a slowdown in the Chinese economy. How worried are you by current developments in China and will they impact on the Government’s stated aim to create a consumer-focussed economy?

A: The Chinese economy has faced worsening demographics, excess capacity which has hurt investment, an overvalued currency which has hurt exports, and the chilling effect of the trade wars.  The government is attempting to offset these factors through fiscal and monetary stimulus, but it remains uncertain how effective this will be.  For now, the shift to a consumer oriented economy remains unfulfilled. 

Q: Many are worried about what is happening to the big economies in Europe. What should retailers operating in Europe be concerned about?

A: The economy of Europe has decelerated more than expected.  Several factors contributed to this including higher energy prices, a high valued euro, weak demand in China, and the uncertainty about trading relations with the US.  Germany was hit especially hard by the trade situation and Italy was hit by higher bond yields.  Still, the ECB retains an easy monetary policy, and several countries are engaging in more fiscal stimulus.  Thus, a general European recession is unlikely.  For retailers, slower growth and very low inflation means a tough market share battle. 

Q: Retailing is an international business. What countries and regions do you see as offering the strongest prospects for growth over the next 12 months?

A: I would say that the attractive countries are those that have one or more of the following attributes: favourable demographics, strong governing institutions, openness to investment and trade, and lots of low hanging fruit in that there remains a big opportunity to modernize retailing.  Among the countries that have these attributes are India, some countries of Southeast Asia, and some countries in sub-Saharan Africa. 

Take a look at the Global Powers of Retailing 2019 report mentioned during Dr Ira Kalish's interview now. Dr Ira Kalish will be speaking during the World Retail Congress 2019, don't miss out the chance to hear from the Chief Global Economist from Deloitte in Amsterdam - book you pass today.

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