Forward Thinking

As we settle into the new year, forecasters at Oxford Economics are optimistic about America’s prospects in 2019. Despite a global slowdown in GDP growth, the US will post the strongest gains of any G7 country. Unemployment is at a 50-year low, and real wages are on the rise. Yet with a rising federal funds rate, a dissipating fiscal stimulus and the risk of a renewed government shutdown—not to mention issues abroad, such as a no-deal Brexit and a trade war with China—companies will need to navigate some headwinds.

Illicit trade is a persistent and growing threat, as technology, the global economy and e-commerce open new opportunities for counterfeit products to infiltrate supply chains and provide consumers with illicit products. Many understand the risks—that illicit trade can cause serious public health issues, and that the proceeds from illicit sales fund other criminal activities. Others view some form of illicit trade as the soft underbelly of the global economy— the price to be paid for frictionless trade.

A new study from Oxford Economics seeks to understand this evolving issue better—specifically, the attitudes and behaviours of those that influence the demand and the supply for illicit goods, so that illicit trade can be contained. We surveyed more than 37,000 consumers, across 37 European countries, buying five products; cigarettes and tobacco, alcoholic drinks, films, music and games, clothing and accessories and medicines.

Markets’ attention in recent weeks and months has been focused intently on central bank policy actions as the US Federal Reserve and European Central Bank have pressed ahead with further moves toward ending the era of historically low interest rates and easy money. Yet beneath the surface of the world economy, potent trends in global liquidity driven by the vast capital flows across fixed income markets have commanded far less scrutiny – despite far-reaching implications.

A large liquidity squeeze looms, with equally large potential consequences. Cross-border bond purchases by fixed income investors could plausibly drop by more than half this year and next, to an average of only $500 billion a year, versus 2017’s tally of $1.2 trillion.