View more on these topics

Behind the numbers: Will there be a global economic slowdown in the next 12 months?

With a rumbling trade war, Brexit worries and challenges in both the US and China, what is the outlook?

In 2018, we witnessed two global sell-offs, emerging market currencies weakening against the dollar, tightening monetary policies and trade war headwinds start to impact the global economy. So, what can we look forward to in 2019?

To begin to answer that question it would be best to recap the events of the key economic regions last year and look at the expected outlook for each, before circling back and attempting to answer the headline question.

In late 2018, the European Central Bank announced at its monetary policy meeting that it would end its €2.5trn (£2.26trn) quantitative easing programme. During the run-up to the meeting, the bloc had seen sluggish GDP growth in the previous quarter, inflation excluding oil prices remain low and the political saga that is Brexit rumble on.

While headline inflation has been broadly in line with the ECB’s target of 2 per cent since 2017, it has largely been artificially driven by the oil price. If we were to strip out its volatile components, the core annual inflation rate would have hovered around the 1 per cent mark since 2016.

The best and worst performing funds of 2018

Weak growth in Europe
Italy, whose economy contracted in the third quarter of 2018, published an ambitious budget plan to increase public spending in order to kick-start an economy which has undergone a long period of stagnation.

Unsurprisingly this did not go down too well with the EU, which would have liked to have seen reduced spending plans – Italy’s debt-to-GDP ratio is more than twice the 60 per cent limit. While Germany’s growth reversal can be argued to be an anomaly due to tighter car manufacturing laws, Italy has lost its momentum of early 2018, and future GDP growth is expected to slow down and remain at 0.9 per cent over the next two years, as domestic and external demand weakens.

Uncertainty in the UK
GDP growth is expected to be sluggish for the UK in 2019. Brexit talks dominated headlines last year and one certainty is that they will continue to do so.

The meaningful vote, which had been scheduled for 11 December, was postponed, creating uproar in the House of Commons. Business investment growth is set to remain weak in the future as political uncertainty spills over into the new year.

Jitters in the US
Over in the US, tightening monetary policy due to the Federal Reserve’s continual rate hikes has inadvertently helped reduce the yield curve spread (the difference between 10–year and two-year US treasury bonds) as the longer-dated bonds have struggled to keep up with the rising short-term rates. US markets have been on an incredible bull run since 2009 but the two global sell-offs and the reduced spread have created a jittery market.

The spreads of some of the other relationships turned negative recently. For every recession since the mid-1970s, a yield curve inversion has preceded it.

Neptune to merge income fund into better performing peer

With the Democrats now controlling the House, they have the ability to veto acts that could help economic growth, and as the election campaign gains momentum next year this could prove to be tempting. The Congressional Budget Office forecast strong growth for 2018 as the corporate and personal income tax cuts were applied by the government, buoying spending. The CBO expects growth to slow to 2.4 per cent in 2019, citing growth in business investment and government purchases as falling.

Encouraging signs in Brazil
In Brazil, much of its outlook is heavily dependent on the president being able to deliver on his political manifesto. Jair Bolsonaro’s promise to cut taxes and privatise state-owned companies has sounded like music to investors’ ears and, if reforms can be implemented, growth is expected to pick up over the next two years.

Turkey, meanwhile, is dealing with rampant inflation. The Turkish lira alongside the Argentine peso, has been one of the worst performing EM currencies. External borrowing has picked up heavily over the last eight years, with debt currently standing at $457bn (£361bn), and the possibility of a strengthening US dollar does not help ease the country’s burden. The nation is expected to suffer a contraction, albeit a short one, in 2019.

China’s rebalancing phase
China was in tariff disputes with the US for a good portion of 2018. Whether a full-blown trade war or a de-escalation happens seems impossible to accurately predict. For now, an uneasy truce is being upheld by the two nations. China is currently at a rebalancing phase, whereby policymakers must ensure that a move away from its reliance on manufacturing and external investment to a focus on domestic growth is handled with minimal disruption.

‘Fat Cat Friday’ brings new chance of investor rebellion

Beijing officials are aiming to maintain growth while creating a sense of stability. Even through the political turbulence, growth is expected to continue in 2019, albeit at a slower rate.

The global economy is certainly navigating choppy waters. The OECD believes GDP growth is strong but has peaked, citing that in many countries unemployment is well below pre-crisis levels. Meanwhile, labour shortages are biting and inflation remains tepid.

The global economy is expecting a soft landing in 2019 with global GDP growth estimated at 3.5 per cent. However, much of this will be down to how well key policymakers are able to steer their respective economies through the noise.

Ahmed Mohamoud is research assistant at FE



Steve Bee: How the UK lost its pensions mojo

A few decades ago, it was not at all unusual for ordinary workers in the UK to have a defined benefit pension scheme provided by their employer. That has all changed now, of course. Very few employers now offer DB schemes to new workers and the schemes we do have, in the private sector at […]


SimplyBiz exec to head “invite-only” Prudential planning arm

Prudential UK & Europe has announced former New Model Business Academy managing director Tom Hegarty will head the new self-employed part of its financial planning business. The invitation-only arm of Prudential FP will be open to up to 30 of its 360-strong advice staff. Those involved will be able to build their own businesses which […]


Aviva to compensate policyholder over GMP errors

Aviva must compensate a policyholder for the way it administered their guaranteed minimum pension, the Financial Ombudsman has ruled. In the case, Mr C complained Aviva made mistakes when telling him about his retirement benefits. His plan was migrated to Aviva in 2015 when it acquired his original plan provider and an inputting error changed […]

Credit outlook 2018

RLAM’s Head of Credit, Eric Holt recaps 2017 and outlines prospects for credit strategies in our brief video. Watch the video here Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not […]


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. […] January 14, 2019 Kimberly Rogers-Brown US & GLOBAL ECONOMY Leave a comment Link to original article […]

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm