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Global Economic Forecast: Rising Trade Tensions Are Hurting Global Growth

Market and Economics

By Sara B. Potter, CFA  |  May 29, 2019

Now that we’re almost halfway through 2019, Sara Potter examines the performance of the global economy so far this year and the projections for the rest of 2019 and 2020 from various sources. Read on to see Sara's key takeaways.

  • Global economic growth is expected to slow in 2019. Both the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have continued to lower their forecasts in recent months. The IMF is now projecting 2019 global growth of 3.3%, compared to its 3.9% forecast a year ago. The OECD forecast is calling for 3.2% growth this year, 0.7 percentage points lower than its May 2018 forecast.
  • In the United States, 1Q 2019 GDP growth came in at a surprisingly strong 3.2% (annualized q/q%). However, beneath the strong headline number were several signs pointing to a cooling economy: consumer spending grew by just 1.2%, private companies saw a significant buildup of inventories, private investment in equipment was essentially flat for the quarter, and residential investment declined for a fifth consecutive quarter. Growth is projected to slow in the coming two years as the fiscal policy stimulus that provided a boost in 2018 abates. In addition, a weaker global outlook and the escalating trade war with China will weigh on activity. Following last year’s 2.9% growth, all forecasts indicate slower growth in 2019. The IMF is forecasting 2.3% growth, the OECD has a projection of 2.8%, and analysts surveyed by FactSet expect 2.4% growth.
  • Growth forecasts have been marked down for many eurozone economies as data continues to show weakness in the key manufacturing and export sectors. Eurozone manufacturing PMI has been in contraction for four consecutive months and in Germany, May business confidence fell to its lowest level in more than four years. The economy grew by 1.8% in 2018, its slowest expansion in four years; in 2019, the region is expected to grow by just 1.2-1.3%.
  • There is substantial uncertainty around economic projections for the UK, since the shape that Brexit will ultimately take remains highly uncertain. The European Union approved an extension to the UK’s exit date (to October 31) after Parliament couldn’t agree on a solution before the original March deadline. With no clear resolution in sight, the ongoing uncertainty will continue to weigh on UK companies, depressing business confidence and investment spending. Both the IMF and OECD are forecasting 2019 growth of 1.2%, while the consensus forecast from FactSet Economic Estimates indicates 1.3% growth.
  • In Japan, the economy’s momentum has slowed in early 2019 as global demand has cooled, directly impacting the manufacturing sector. Industrial production fell 2.5% in the first quarter, its worst quarterly performance in nearly five years; meanwhile, the manufacturing PMI has registered below 50 in three of the last four months. While the IMF’s April 2019 forecast projects that growth will accelerate to 1.0% in 2019, both the OECD and analysts surveyed by FactSet expect growth to decelerate to 0.7%.
  • Following a 6.6% expansion in 2018, China’s economic growth is expected to continue to decelerate in 2019 and 2020. While weak global demand and rising trade tensions with the U.S. are already weighing on the economy, most observers expect the government to apply stimulus to support the economy. The IMF is projecting 2019 growth of 6.3% while the OECD and FactSet Economic Estimates are forecasting 6.2% growth.

Risks to the global growth outlook skew to the downside. Both the IMF and OECD are concerned about the impact of a further escalation of trade tensions, a “no-deal” Brexit, a sharper slowdown in China, and an extended period of meager growth in Europe.

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Sara Potter, CFA

VP, Associate Director, Thought Leadership and Insights

Sara Potter joined FactSet in 199 and is based in Norwalk. She is responsible for developing applications that facilitate the analysis of global markets at a macro level, highlighting FactSet’s vast benchmark and economic content sets. Sara has also managed the economic database development team where she was responsible for the integration of third-party economic content as well as the development of FactSet Economics data. Sara earned a M.A. in International Economics and Finance from Brandeis University and holds a B.A. in Economics and French from Dartmouth College. She is a CFA charterholder.

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