The Forward View – Global: September 2018
Growth at a multi-year high but set to slow as risks build.
- Our tracking indicator of the major advanced and emerging market economies points to global economic growth reaching its highest rate since September 2011 (at around 4.0% yoy) in Q2 2018. That said, we maintain our view that global growth is near the peak of the current cycle and our global leading indicator also points to weaker growth in the second half of 2018.
- Moreover, underneath this solid headline reading, growth has become less synchronised. Among the major advanced economies, annual growth rates have slipped outside of the US. Similarly, EM growth was largely held up by an acceleration in India. This divergence is likely to be exacerbated in the second half of the year due to a major deterioration in financial conditions in certain EM economies, such as Argentina and Turkey.
- Contagion across the range of EM economies is so far limited but remains a concern against a backdrop of ongoing trade tensions.
- Reinforcing the growth slowdown is the gradual tightening in monetary policy underway across both Advanced and EM economies (although it is not yet ‘tight’), the fading over time of this year’s US fiscal stimulus and growing supply constraints. Overall, we expect global growth to peak this year at 3.8%, before easing over 2019 and 2020.
- Our forecasts are based on implemented tariff measures. The US is widely expected to announce new tariff measures on Chinese imports – but the scope and timing remains unclear. As illustrated below, threatened US tariff measures on Chinese imports (and retaliatory Chinese action) represent a substantial downside risk to growth although a range of factors, including the fiscal and monetary policy response, would shape the overall impact.
For further details, please see the attached document: