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Economics Commentary

Global Macro Outlook - November 2019

13 November 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

  • Financial markets have been buoyed by positive developments in the US-China trade war. While that’s good news, we’re not convinced it’s a game-changer for the global economy.
  • That’s partly because negotiations might still fail. But the main reason is that the so-called phase-one agreement is unlikely to end the uncertainty weighing on business investment, particularly at a time when other populist risks are clouding the outlook.
  • We’re more inclined to regard recent developments as reducing downside risks than a reason to raise our forecasts. In fact, we’ve lowered our 2020 global growth forecast to 2.2% from 2.3%, largely because of a downward revision to China (5.8% from 6.0%).
  • Better news on trade needs to be tempered by less certainty on the policy front. We still expect the Fed and European Central Bank (ECB) to provide additional monetary-policy stimulus, but our conviction levels are lower than they were.
  • In the US, the Fed’s decision to pause after October’s rate cut has raised questions about its reaction function. In Europe, new ECB president Christine Lagarde faces stiff internal resistance to additional policy action.
  • We don’t have high expectations for fiscal policy. Yes, some stimulus is likely; but based on current plans, it won’t be big enough to make a material difference. Large-scale, proactive fiscal stimulus remains a pipe dream for now.

Outlook

  • We have lowered our 2020 global growth forecast to 2.2%, from 2.3% last month. That would make 2020 the weakest year for global growth since 2009 (when it contracted by a massive 2.0%). The main change involves China, where we have reduced our 2020 forecast to 5.8%, from 6.0% last month, slightly below the consensus expectation of 5.9%.
  • We’re also a bit below consensus on the US (1.5% vs. 1.8%) but more pessimistic on the euro area (0.3% vs. 1.0%) and Japan (-0.4% vs. 0.3%), reflecting our concerns about trade-sensitive economies with limited policy flexibility.
  • The secular backdrop still points to higher inflation. But cyclical developments point in the opposite direction, and we expect global inflation to fall to 2.7% in 2020, from 2.8% this year.
  • Monetary easing is under way and likely to continue. We expect the Fed to cut rates by another 75 basis points (b.p.) and the ECB to announce an additional rate cut and more aggressive asset purchases.

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