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Economics Commentary

Global Macro Outlook - September 2019

09 September 2019
2 min read

What You Need to Know

Our experienced global team of economists offers its latest perspective on the world economy. Included are regional and country forecasts for growth, inflation and interest rates, updates on central bank and fiscal policies, and the upside and downside risks that could change the trajectory.

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Key Forecast Trends

  • The outlook continues to darken. We now expect global growth to slip to 2.3% in 2020, which would be the weakest growth rate since 2009.
  • We’re focused on two key questions. Will manufacturing recover before weakness spreads to investment and jobs, dragging overall growth lower? And will the policy response be big enough and effective enough to offset downward pressure on global growth?
  • We’re not optimistic on a speedy turnaround in the manufacturing sector and have deep concerns about policy effectiveness in some high-income economies. Our central forecast is therefore for the global economy to move into a protracted downturn with no clear end date in sight.
  • We’re particularly concerned about the outlook for trade-sensitive economies where there’s limited scope to provide effective policy support. That’s why we’ve cut our forecast for 2020 euro-area growth to 0.3% (1.1% previously) and expect Japan to contract by 0.4% (+0.5%).
  • Closed economies should fare better. We’ve lowered our US forecast only modestly to 1.5% (1.8% previously) and have sufficient confidence in an effective Chinese policy response to leave our China forecast unchanged at 6.0%.

Outlook

  • We have marked down our global growth forecast for 2020 to 2.3% from 2.6% previously, which would make next year the weakest year for the global economy since 2009 (when it contracted by 2.0%).
  • The biggest revisions have come in high-income, trade-sensitive economies like the euro area and Japan. We expect the euro area to grow by just 0.3% next year and Japan to contract by 0.4%. Both forecasts are well below the consensus—1.1% for the euro area and 0.4% for Japan. We are also below consensus on the US (1.5% vs 1.8%) but in line on China (6.0%).
  • The secular backdrop still points to higher inflation. But cyclical developments clearly point in the opposite direction and we expect global inflation to fall to 2.7% in 2020 from 2.9% this year.
  • Central banks have abandoned their plans for policy normalization. We expect the Fed to cut rates by another 125 basis points (b.p.) and the European Central Bank (ECB) to couple modest rate cuts with additional bond purchases. Policy effectiveness will be key.

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