Global Macro Outlook - May 2019

Key Forecast Trends

There are early signs that the global slowdown that started a year ago is coming to an end. That is certainly the message from recent data out of China and, more tentatively, Europe.

We do not, however, think a stabilization in global growth will be followed by a rapid cyclical improvement. Still, a period of soft but stable growth might not be so bad for risky assets, especially as it would help keep developed-market central banks on hold.

A key question for investors is the extent to which this benign outlook is already discounted in asset prices, particularly at a time when the secular outlook remains challenging.

What could give asset prices a further leg up? A positive spill-over from China to the rest of the world would help, as would clearer signs that the Fed's reaction function is shifting towards higher inflation. On the downside, there's the renewed risk of a trade-war between the US and China and the ever-present threat posed by populism in its various guises.

Outlook

We continue to see global growth at 2.7% next year, marginally higher than this year (2.6%) but the lowest year-ahead growth forecast we have published since 2010. This is consistent with the weak secular trend.

Looking at the major countries, we expect growth to slow slightly in the US (1.8% versus 2.0%) and China (6.0% versus 6.2%) and remain soft in the euro area (1.2% versus 1.1%) and Japan (0.5% versus 0.6%). None of these forecasts is materially different from consensus.

That's also the case for global inflation, which we expect to hold steady at 2.6% in 2020. Where we do have a different take is on the US, where we expect inflation to rise to 2.5% next year (consensus 2.1%).

Importantly, we think that higher inflation is what the Fed wants and that US interest rates will now remain on hold until the end of 2020. That's also our view on the European Central Bank (ECB), where, if anything, the near-term bias is tilted toward further easing.

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Global Macro Outlook - May 2019

What You Need to Know

Key Forecast Trends

Outlook