Thursday, 13 December 2018

2019: Year of Deceleration?


Goldman Sachs (“GS”) is of the view that global economy is poised to slow moderately from 3.8% in 2018 to 3.5% in 2019. With probably five more 25bp hikes to the Fed Funds rate (reaching 3.5%) in 2019, a slowdown looks more apparent. For the U.S., it is deceleration from 2.9% in 2018 to 2.5% in 2019 and 1.6% in 2020. It is only emerging markets that are bucking the trend (see table below). India and Russia provide the bright spots (for 2020).


Table 1: Our Global Growth Outlook

As GS puts it, slower growth in a number of developed economies is because of capacity constraints and less so for emerging markets.

Some economists are taking a more sinister view, that recession in the U.S. will begin in 2020. The timing of a downturn may be in dispute but headwinds are growing stronger and numerous for the U.S. economy – interest rates; borrowing costs; trade policies; inflation; earnings growth; and general sentiment/business outlook. “Gravity can’t be defied forever” says Ian Shepherdson, chief economist at Pantheon Macroeconomics.

A potential bright spot could be the G20 Summit in Buenos Aires, Argentina. (The G20 represents 19 states and the EU and accounts for 85% of global GDP and 2/3 of the world’s population). But if trade tensions escalate between U.S. and China, China’s growth is negatively impacted by up to 0.4% while the U.S. will have a negative impact of up to 0.1%. So it is in everyone’s interest to find a viable solution and provide a reasonable growth trajectory for others to sustain their growth.

Reference:
Landing the Plane, Global Economic Analysis, Goldman Sachs Economic Research

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