U.S. Markets closed

Investment guru Borish identifies the ‘No. 1 problem for 2019’

Most experts agree that global growth is set to slow in 2019.

Less assured, however, is the precise cause for the deceleration. Investors have envisaged a slew of contributing factors, from tumbling oil prices to less accommodative fiscal and monetary policies to ongoing geopolitical tensions.

But according to Peter Borish, chief investment strategist of Quad Group, each of these considerations points back to a central primary concern: “contractionary” governmental policies weighing as “deflationary pressures” on global economies.

Borish cited British Prime Minister Theresa May’s uphill battle to deliver a workable deal for the United Kingdom to exit the European Union as an example.

“Brexit is a symptom of what is happening around the world … these deflationary pressures and people not happy with their leadership,” Borish told Yahoo Finance.

“You can say that that was related to the strong win by the Democrats in the (House of Representatives) this year, the problems that are going on in France, the continuing problems with the budget in Italy,” Borish added. “It’s all symptomatic of the same thing, which is that there is a tremendous amount of debt with a lack of liquidity flushing through the system, and that is deflationary.”

His comments come amid moves by various institutions to slash global growth outlooks for the coming years. The International Monetary fund cut its global growth forecast by 20 basis points to 3.7% for this year and next. Nomura’s base forecast for 2019 calls for global GDP growth to slow to 3.6% from 3.9% in 2018, while Goldman Sachs foresees economic growth slowing to 3.5% from 3.8%.

Expansionary policies

Borish’s references to “deflationary pressures” take on a different color than the term’s conventional economic usage, which refers to a decline in prices of goods and services. His take parallels the financial lexicon of a “risk off” strategy, with investor sentiment deteriorating in tandem with a weakening economic outlook and leading to selling of riskier assets such as equities.

U.S. tariffs on Chinese-made products, for instance, have been one such pressure cited by both Borish and an array of other analysts. Ian Shepherdson of Pantheon Macroeconomics wrote in a report earlier in December that tariffs have weighed on consumers, increasing their cost burden as President Donald Trump’s administration seeks to negotiate a trade deal with China.

“The uncertainty caused by the whipsawing of his trade stance means that business investment will be delayed or cancelled, marginal hiring decisions will be postponed, and potential overseas business partners will look elsewhere,” Shepherdson wrote. “Importers of consumer goods, capital equipment and components will look for alternative sources of supply, but they were buying from China for a reason, and prices will be higher if the administration can’t reach an agreement.”

The solution, Borish asserts, are expansionary policies, or those that work to boost economic activity and stimulate market constituents.

Wednesday’s equity trading session saw one such example of Borish’s theory playing out. Stocks took a turn higher following reports that China was preparing to increase access to foreign companies, replacing policy aimed at protectionism with one more open to outside participation.

“We need expansionary policies, which is why the economy, all of a sudden people are saying it’s going to slow and perhaps slow dramatically,” Borish said. “That is the no. 1 problem for 2019.”

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

Follow Yahoo Finance on TwitterFacebookInstagramFlipboardLinkedIn, and reddit

Read more from Emily:

Why the Huawei arrest is a huge problem for U.S.-China trade relations 

Netflix user growth beats expectations, shares spike 

Now is a ‘once-in-a-lifetime chance’ to invest in US pot companies, investor says 

There are ‘4 headwinds’ facing markets rights now

Ark Invest CEO: Tesla ‘is a replay of Apple’ 

China’s slowing economy could be a problem for Apple