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Economics Commentary

Global Macro Outlook - January 2019

23 January 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

  • When 2018 began, the global economy was in a cyclical sweet spot. But gathering headwinds—including those caused by debt, demographic trends and populism—changed that, leading to slower growth and poor risk-asset returns.
  • Investors who expected last year to be the one when conditions returned to normal were disappointed. The definition of what's "normal" needs a reset.
  • We expect global growth to continue to slow in 2019—a normalization, if you will, back towards growth rates more consistent with a soft secular backdrop.
  • To be sure, this doesn't add up to recession. But softer growth and reduced liquidity do increase vulnerability. If any one of several key risks becomes reality, it could easily push us toward a worst-case outcome.
  • If that happens, investors will rightly question what's left in the monetary-policy toolbox. We fear the answer is likely to be "not much."

Outlook

We trimmed our 2019 global growth forecast again this month—this time, to 2.8%. Downgrades to the US (incoming activity data) and Canada (softer oil price and weaker US forecast) dominated; Japan's forecasts were also marked lower as export volume growth continued to soften.

Compared with consensus, we are still a bit more pessimistic on the euro area (1.3% vs. 1.6%) and the US (2.0% vs. 2.6%), in line on China (6.2%), and a tad above consensus on Japan (1.2% vs. 0.9%).

We've also trimmed our global inflation forecast for next year, to 2.8%. This largely reflects a lower oil price starting point. While slowing growth represents a downside risk, high capacity utilization rates and rising wage growth represent clear upside risks, and we do not expect a sharp deceleration of core inflation pressures.

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