Top 10 economic predictions for 2019
The global economy started 2018 with strong, synchronized growth, but the momentum faded as the year progressed and growth trends diverged. Notably, the economies of the eurozone, the United Kingdom, Japan, and China began to weaken. In contrast, the US economy accelerated, thanks to fiscal stimulus.
What's coming in 2019
Global growth will edge down from 3.2% in 2018 to 3.0% in 2019-and will keep decelerating over the next few years. The risk of an escalation in trade conflicts remains high, and if such an escalation were to occur, a contraction in world trade could slow the world economy even more. At the same time, the sell-off in equity and commodity markets, on top of the gradual removal of stimulus by some central banks, means that financial conditions worldwide are tightening. Combined with heightened political uncertainty, these risks point to a greater probability of a recession in the next few years.
1) US growth will remain above trend with economic
fundamentals remaining fairly solid.
In 2018, US growth was a well-above-trend at 2.9%, with the
acceleration almost entirely due to a large dose of fiscal stimulus
(tax cuts and spending increases) put in place at the beginning of
the year. The impact of this stimulus will still be felt in 2019,
but with diminishing potency as the year progresses. As a result,
we expect growth of 2.6%-less than in 2018, but still above
trend.
2) Europe's expansion will slow even more.
Eurozone growth was 1.9% in 2018, and we predict a
further decline to 1.5% in 2019. A number of adverse economic and
political factors will negatively impact growth, including less
accommodative credit conditions, heightened trade tensions, the
deceleration in world trade growth, and the appreciation of the
euro. Anxiety about politics is certain to remain high in 2019 as
events in France, Italy and Germany contribute to the rise in
political uncertainty. In addition, the continuing turmoil around
Brexit will hurt UK growth, which will fall to 1.1% in 2019.
3) Japan's recovery will remain weak.
Growth in 2018 is expected to come in at 0.8% and to hold
close to that rate at 0.9% in 2019. While monetary policy continues
to be ultra-accommodative, there are two big drags on Japanese
growth: the slowdown in China's economy and the hit to trade growth
owing to the fallout from trade tensions between the United States
and China. The expected rise in construction spending ahead of the
2020 Olympics will sustain growth in 2019, but the boost will fade
by the end of the year.
4) China's economy will keep decelerating.
The pace of expansion will slow further to 6.3% in 2019.
However, the Chinese government is very sensitive to too rapid
decline in growth, the recent rout in the stock market, and the
potential impact of US tariffs, which have so far been limited. In
response, policymakers have unleashed a series of monetary and
fiscal measures to help support growth and stabilize financial
markets, though these measures are likely to remain modest.
5) Growth in the emerging world has topped out, and will
slide further next year.
During 2018, growth in emerging markets edged down 4.8%,
and will decline further to 4.6% in 2019. Going forward, emerging
markets face a number of headwinds. First, growth in the advanced
economies is slowing-as is the pace of world trade. Second, global
financial conditions are getting gradually tighter and the dollar
is expected to remain strong. Third, commodity prices will remain
volatile in the next year. Last, but by no means least, rising
political uncertainty in countries such as Brazil and Mexico could
scare away foreign capital inflows. A few countries will be able to
buck these trends-especially dynamic economies with low levels of
debt-notably in Asia.
6) The volatility in commodity markets will continue,
with significant downside risks.
Weaker global growth, the gradual tightening of credit
conditions, and strength in the US dollar will pose challenges for
commodity markets in 2019. Nevertheless, demand growth next year
still looks strong enough to provide markets with support and we
expect commodity at the end of 2019 to be little different than at
the end of 2018, but getting from here to there could be another
roller-coaster ride.
7) Inflation will not rise much-if at all.
Global consumer price inflation rose from 2.0% in 2015 to
3.0% in 2018. Most of this was due to a transition in the developed
world from deflationary, or near deflationary, conditions to
inflation rates that are close to central banks' targets of 2.0%.
Over the near term, IHS Markit expects global inflation and
developed-economy inflation to remain close to 3.0% and 2.0%,
respectively.
8) Global central bank actions will continue to
diverge.
The US Federal Reserve is likely to raise rates in
December and three more times in 2019. Pending the Brexit process,
The Bank of England may raise rates next year, while The Bank of
Canada and a few emerging-market central banks - possibly Brazil,
India, and Russia - may do the same. We do not expect the European
Central Bank to hike rates until early 2020, nor do we expect the
Bank of Japan to end its negative interest-rate policy until 2021.
The People's Bank of China is moving in the opposite
direction-worried about growth, it will continue to provide modest
stimulus.
9) The US dollar will maintain its strength against most
currencies.
We expect the greenback to hold at current elevated
levels for much of 2019. On the other hand, high and rising levels
of political uncertainty in Europe could be very negative for the
euro and sterling. We expect that the euro/dollar rate will end
2019 at around $1.10, compared with $1.14 at the end of 2018. At
the same time, we predict that the renminbi/dollar rate will hold
fairly steady just below the psychological level of 7.0-the result
of the Chinese government's desire for financial stability.
10) The risks of policy shocks have risen, but probably
not enough to trigger a recession in 2019.
Policy mistakes remain the biggest threats to global
growth in 2019 and beyond. These include rising debt levels and
budget deficits in the US, high debt levels in Europe and Japan,
and potential missteps by key central banks. Last, but by no means
least, the simmering trade conflicts are dangerous, not because
they have done damage so far - they haven't - but because they
could easily escalate and get out of control.
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Top 10 economic predictions for 2019
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