Rewind to 2017. It was a very unusual year, with global growth receiving a boost from a combination of ultra-supportive financial conditions, a temporary boom in the global trade cycle and the absence of any adverse political or financial shocks, said Darren Williams, senior vice-president and director of global economic research at AllianceBernstein, speaking at a 2019 economic outlook event in Toronto on Jan. 9.

However, all this changed in 2018, and the sweet spot for global growth disappeared with the world returning to an environment where secular factors affecting economic growth started to dominate, he noted. These factors include demographics, debt overhang, regime shift, populism, de-globalization and the fourth industrial revolution.

“There’s been absolutely no deleveraging whatsoever in the global economy when you add everything up over the last 10 years,” said Williams, highlighting that since 2008, debt has gone up by $59 trillion. As well, the composition of that debt has changed, with the biggest contributor to the increase tied to China, he said.

Investors should be worried about debt in 2019 because it’s likely to make the economy much more sensitive to rising interest rates and it puts constraints on policy, particularly in China, he noted. “Probably the biggest risk we see for 2019 is that the Chinese authorities don’t ease policy quickly enough or in sufficient magnitude to prevent the economy slowing significantly below six per cent.”

There are also demographic considerations going forward with population growth coming from different parts of the world. “It’s coming primarily from Africa and India, and there are doubts as to how quickly African and Indian population growth can be assimilated into the global trading system in the same way that China was.”

As well, African population growth is creating immigration into Europe that’s fanning populism, said Williams.

Populism is here to stay, he noted, which will lead to challenges including countries raising the drawbridge and becoming more protectionist, institutional erosion and re-distribution, all of which he thinks will lead to higher inflation over time.

“Populism is having a huge impact on the economy and on financial markets,” he said, pointing to examples like trade tensions, Brexit and Italy.

In 2019, growth in all major global economies is expected to slow, he said. “I don’t think we should be unduly worried about that. I think the economies have been doing very well.” As such, he noted this deceleration of economic growth primarily as a normalization towards growth rates that are more consistent with the secular backdrop.

“All of that said, there are a number of risks. So China is one, Brexit is another. If any of those risks crystalizes than you do tip the balance from a normalization to the possibility of us running into something which is a bit more nasty, which is a recession.”