Economic and Strategy Viewpoint - March 2019

Global outlook: slowdown, not recession

– We have cut our 2019 global growth projection again; however, we still believe that the US and world economy will avoid an outright recession. Consumer confidence and spending is firm and the corporate sector is not overextended to the degree that it needs a major retrenchment.

– Instead we are looking at the recent easing in US-China trade tensions, more flexible central banks and the benefits of lower oil prices to stabilise activity later this year and support an upgrade in our global growth forecast for 2020.

Europe: rebound delayed, but still expected

– Weak external demand combined with temporary shocks to domestic supply have caused European growth to slow and disappoint investors. Signs of a rebound are emerging, but it is likely to be delayed to the middle of 2019. The growth forecast has therefore been downgraded for 2019, but upgraded for 2020. As a result of the slower recovery, the European Central Bank delays raising interest rates until the end of 2019.

– Brexit continues to haunt the UK economy as companies complain of the negative impact on their business. The delay in the ratification of the Withdrawal Agreement has led to the downgrade of the UK GDP forecast for 2019, though a smooth transition is still a key component. The next Bank of England rate rise is therefore delayed by three months to allow more time for the economy to rebound post-Brexit.

EM forecast update: oil on troubled waters

– Minor changes to growth expectations in emerging markets this quarter, but large downward revisions to inflation on a mix of a more favourable oil outlook and improved domestic dynamics.

Japan: BoJ to stay on hold through VAT hike

– We downgrade our 2019 growth outlook from 1% year-on-year (y/y) to 0.7% y/y due to disappointing growth in 2018, partly offset by infrastructure spending. A more optimistic outlook on the external environment and more infrastructure spending pushes up our 2020 growth outlook from 0% y/y to 0.4% y/y.

– The weaker global backdrop has led to a more dovish tone from the Bank of Japan. We now expect monetary policy to remain unchanged in 2019 through the VAT hike.

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Economic and Strategy Viewpoint - March 2019 27 pages | 705 kb