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Global economic slowdown? Not so fast…

Key points:

  • While we expect the US will endure a significant slowdown during 2019 and 2020 (with respective growth of 2.3% and 1.4%), the latest data flow does not confirm the recent fear, of a faster and more pronounced pullback. Additionally, we do not view the Fed’s recent commentary – perceived as dovish – as precluding our forecast of three hikes next year
  • Similarly, Eurozone Purchasing Manager Indices (PMIs) are worrying but other business surveys are sending more mixed signals. We see a further modest slowdown in 2019 to 1.4% growth (below consensus) after 1.9% this year
  • The UK outlook, unsurprisingly, is dominated by Brexit, with the deal struck unlikely to get through Parliament on 11 December. Yet on balance, we still see January delivering a positive vote on the deal
  • After a sharp contraction in the third quarter, Japan’s economy is bouncing back, confirming our outlook for stable growth in 2019 at +0.9%, as in 2018
  • We also see tentative signs of the Chinese government’s stimulus filtering through to the economy, particularly in the area of infrastructure investment. Retail sales have however disappointed
  • Across global emerging markets the macro data flow has been weakening

US slowdown: sooner than expected?

We believe the US economy will slow over the next two years. We forecast that this will start modestly (2.3% for 2019) but then gather momentum and turn into a material deceleration in 2020, (1.4% forecast) although we do not anticipate that there will be an outright contraction in either year. Our view is more pessimistic than the consensus forecast, which assumes growth of 2.6% in 2019 and 1.9% in 2020. However, recent market moves suggest there are fears of a sharper slowdown.


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