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Global growth downgraded

  • Monday, December 17, 2018

Christine Lagarde, President of the IMFFund managers have continued to downgrade forecasts for global growth. The end of Q3 consensus forecasts for 2018 has been reduced to 3.2% from 3.4% in Q2 and for 2019 down to 3% from 3.2%.

The most significant changes were in Europe and Japan where growth particularly disappointed. US GDP growth looks as if it has hit its high-water mark and is predicted to finish Q4 on a year-on-year growth of 2.5%. China, despite its state-controlled growth, is expected to fall short of it 6.6% target and end 2018 at 6.2% growth for the year.

The downgrade for 2019 has been driven by the expectations of a prolonged trade war between the USA and China. While we hope that pressures on both sides will lead to a resolution ahead of January’s tariff rate rises from 10% to 25% many expect this trade dispute to persist.

The consensus for US inflation in 2019 is 2.3% the same rate as in 2018. This takes into consideration the cost of goods due to import tariffs, rising labour costs, but also a strengthening US$, a fall in housing costs and a decrease in oil prices.

The inflation projection has a major bearing upon future US interest rates. The Federal Reserve has given forward guidance over its plans for the next four rate rises. Markets are expecting a rise in December of 0.25% and three more in 2019. It is expected that the Fed Funds Rate will hit 3% by mid-2019. An expectation of rising borrowing costs and the fading impact of US fiscal stimulus could lead to a US economic slowdown from late 2019 into 2020.


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Chartered Financial Adviser

Chris is a Chartered Independent Financial Adviser and leads the investment team.