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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