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Global growth turning point: Schroders downgrades outlook for first time since 2016

Schroders Chief Economist Keith Wade explains why the global outlook indicates we are heading in a more stagflationary direction in late 2018 as growth cools and inflation rises: 

Global growth remains robust, but we have revised down our forecast for 2018 to 3.4% from 3.5%. This largely reflects a soft start to the year in many economies, higher oil prices and increased concerns over trade relations between the US and China.

The latter are expected to persist into 2019 and weigh on trade and capital investment spending, even if a full trade war does not break out. We now expect 3.2% growth in 2019 (previously 3.3%) with the pace of activity cooling through the year. Meanwhile, we have revised up our inflation forecast for 2018 to 2.7% (from 2.4%) largely as a result of higher oil prices. In the US, which is approaching full capacity, we still expect core inflation to move higher over the next two years.

Led by the US Federal Reserve, developed market central banks are expected to tighten monetary policy over the forecast period. We expect three more 25 basis point rate hikes in the US this year and two next with the fed funds rate reaching 3% by the middle of 2019.

The European Central Bank is expected to end quantitative easing in Q4 this year and raise rates three times in 2019, ending the era of negative policy rates in the eurozone. The Bank of Japan is expected to adjust its Yield Curve Control policy in Q4, as rising global yields put upward pressure on the 10-year Japanese Government Bond target of zero. In contrast lower inflation, and liquidity concerns, mean that China heads the other way with the People's Bank of China easing the reserve requirement ratio and policy rates lower.

The interest rate cycle is expected to turn upwards in India this year and Brazil next year. Against this backdrop the US dollar is expected to strengthen further in the near term before weakening in 2019 as central banks outside the US begin to tighten.

Turning point

The latest forecast marks a turning point as it is the first time we have revised down our expectations for global growth since September 2016. The recovery in the world economy led to a series of upgrades with global growth reaching 3.3% in 2017, the strongest for six years.

Alongside a benign inflation rate, this helped drive risk assets higher. The forecast for 2018 remains robust at 3.4%, so when combined with our forecast for rising inflation we would still say the world economy is in the expansion or reflation phase of the cycle. However, the outlook indicates that we are heading in a more stagflationary direction in late 2018 as growth cools and inflation rises.

To read Keith's in-depth assessment of global growth, which includes analysis of the fundamental factors impacting its prospects, including rising oil prices and continuing trade uncertainty, please click here

For further information, please contact:


Andy Pearce, Institutional          Tel: +44 (0)20 7658 2203/

Charlotte Banks, Intermediary    Tel: +44 (0)20 7658 2589/

Sarah Deutscher, International    Tel: +44(0)20 7658 6139/


Notes to Editors

Important Information: The views and opinions contained herein are those of Keith Wade, Chief Economist, Schroders, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.