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2019 Global Outlook Summary

Core Content

This document provides a comprehensive analysis of the global economic outlook for 2019, highlighting a synchronised slowdown across major economies. It outlines growth and inflation forecasts for various countries and regions, as well as expectations for currency and interest rate movements.

Main Points

Global Growth and Inflation Forecasts

• Global GDP growth is expected to decelerate from 3.7% in 2018 to 3.4% in 2019 and 3.3% in 2020.
• Global inflation is projected to remain moderate, with a slight decline from 3.8% in 2018 to 3.7% in 2019 and 3.4% in 2020.

Key Countries and Regions

• United States: Growth is expected to slow from 2.9% in 2018 to 2.1% in 2019 and 1.5% in 2020. Inflation is forecast to fall from 2.4% to 1.8% in 2019 and 2.0% in 2020. The Fed is expected to hike rates only twice in 2019 and to pause after June.
• Eurozone: Growth is projected to decline from 1.9% in 2018 to 1.4% in 2019 and 1.2% in 2020. Inflation is expected to rise slightly from 1.8% to 1.8% in 2019 and then stabilize at 1.5% in 2020.
• China: Growth is forecast to slow from 6.6% in 2018 to 6.2% in 2019 and 6.0% in 2020. Inflation is expected to rise from 2.2% to 2.5% in 2019. The Chinese authorities are likely to adopt more countercyclical measures, but these may not reverse the trend.
• Japan: Growth is expected to continue slowing from 0.9% in 2018 to 0.7% in 2019 and 0.3% in 2020. Inflation is projected to rise from 1.0% to 1.4% in 2019. The BoJ is expected to maintain an accommodative stance, possibly with more easing.
• United Kingdom: Growth is expected to rise from 1.3% in 2018 to 1.8% in 2019, assuming a Brexit deal. Inflation is projected to fall from 2.4% to 2.0% in 2019. The Bank of England is expected to hike rates twice in 2019.
• Emerging Markets: Resilience is expected, but with variance. Countries like India and Brazil are seen as more robust, while others like Argentina and Turkey face significant risks.

Key Information

Asset Classes

• FX: The USD is expected to weaken in the medium term, while the JPY may appreciate sharply. The GBP is forecast to rise after a Brexit deal is approved.
• Rates: The Fed is expected to maintain a target range of 2.75-3.00% by the end of 2019. Eurozone yields are expected to rise, with the 10-year German yield likely to reach 1.00%.
• Equities: Focus is shifting from rate concerns to slower growth and lower earnings. European equities may outperform due to less stretched valuations.
• Credit: Credit spreads are expected to widen, with a greater impact on EM and Italian corporate bonds. The ECB may introduce a new TLTRO to mitigate liquidity risks.

Risks

• Downside Risks:
  • Escalating trade disputes could lead to a drag on investment and trade flows, with a detrimental effect on global GDP.
  • A 'no deal' Brexit could trigger a UK recession and a slowdown in the Eurozone.
  • BTP-Bund spreads may widen beyond the central case, affecting the Eurozone's monetary conditions.
  • A sudden inflation spike could force the Fed to tighten more aggressively.
• Upside Risks:
  • Trade tensions may dissipate earlier than expected, leading to a more resilient domestic demand in advanced economies.
  • Wage growth and job creation could support domestic demand more than anticipated.

Market Outlook

• The global carry trade is expected to end, with risk-off sentiment and a recalibration in global markets.
• Market volatility is anticipated to increase, especially in EM and credit markets.
• Corporate liquidity risk is more pronounced in 2020 than 2019 due to rising yields and weaker margins, leading to potential defaults and economic slowdown.

Summary Table

Conclusion

The 2019 global outlook is marked by a synchronised slowdown, driven by emerging capacity constraints, tighter monetary conditions, and trade tensions. While some economies like the UK, Brazil, and India are expected to perform relatively well, others such as China, Italy, and Argentina face significant challenges. The market backdrop suggests a shift from risk-on to risk-off sentiment, with increased volatility and potential for credit spreads to widen. The ECB and Fed are expected to take a more cautious approach to rate hikes, while EMs may benefit from a weaker USD in the medium term.