Author: Nariman Behravesh / Source: Big Think
The global economy started 2018 with strong, synchronized growth. But as the year progressed, momentum faded and growth trends diverged. The US economy accelerated, thanks to fiscal stimulus enacted early in the year, while the economies of the Eurozone, the UK, Japan and China began to weaken.
These divergent trends will persist in 2019. IHS Markit predicts global growth will edge down from 3.2% in 2018 to 3.1% in 2019, and keep decelerating over the next few years.One major risk in the coming year is the sharp drop-off in world trade growth, which fell from over 5% at the beginning of 2018 to nearly zero at the end. With anticipated escalation in trade conflicts, a contraction in world trade could drag down the global economy even more. At the same time, the combined effects of rising interest rates and surging equity and commodity market volatility mean that financial conditions worldwide are tightening. These risks point to the increasing vulnerability of the global economy to further shocks, and the rising probability of a recession in the next couple of years.
1. The US economy will remain above trend
Based on estimates about sustainable growth in the labour force and productivity, we assess the trend, or potential, growth in the US economy to be around 2.0%. In 2018, US growth was well above trend at 2.9%, though the acceleration was almost entirely due to a large dose of fiscal stimulus in the form of tax cuts and spending increases. The impact of this stimulus will still be felt in 2019, but will diminish as the year progresses. As a result, we expect growth of 2.6% in 2019 – less than in 2018, but still above trend.
2. Europe’s expansion will slow even more
Eurozone growth peaked in the second half of 2017, and has declined steadily since then. IHS Markit predicts a further decline to 1.5% in 2019. Political uncertainty, including Brexit, challenges to Emmanuel Macron’s government, and the winding down of Angela Merkel’s chancellorship, are contributing to a decline in business sentiment. Economic factors such as the tightening of credit conditions and heightened trade tensions are also driving the deceleration in growth.
3. Japan’s recovery will remain weak, and its economy will grow less than 1% in 2019
Japan’s economy is expected to expand by 0.8% in 2018, with this rate increasing only slightly in 2019 to 0.9%. The slowdown in China’s economy and the fallout from trade tensions between the US and China are drags on growth. Monetary policy will continue to be ultra-accommodative next year. The cyclical decline in Japan’s growth is occurring in an environment of very weak long-term growth. Adverse demographics – specifically a declining labour force – are not being offset by strong enough productivity growth. The “third arrow” of Abenomics, which was supposed to implement significant structural reforms and boost productivity, has been slow to materialize.
4. China’s economy will keep decelerating
The quarterly rate of Chinese growth has been steadily edging down since the beginning of 2017, hitting its lowest level in 10 years in the third quarter of 2018. On an annual basis, the pace of expansion has slowed from 6.9% in 2017 to 6.6% in 2018, and will fall further to 6.3% in 2019. In response to recent economic shocks – including the impact of US tariffs, which has so far been limited – policy-makers have unleashed a series of monetary and fiscal measures to help support growth and stabilize financial…
The post Our top 10 economic forecasts for 2019 appeared first on FeedBox.