Wall Street economists are sticking with their forecasts for the global economy to enjoy its strongest growth since the start of the decade even as emerging markets wobble and trade wars escalate.
The reason? The US is prospering from President Donald Trump’s tax cuts, while the euro area and Japan are shaking off their soft patches earlier in the year. China is, for now, also managing to mitigate a slowdown through a mix of targeted stimulus.
Solid growth may ease investor concern that has squashed emerging markets this year and stemmed increases in government bond yields. The MSCI Emerging Markets Index of shares is down more than 13 per cent in 2018. The S&P 500 Index, by contrast, has risen about 8 per cent, fuelled in part by US fiscal stimulus.
Here’s a rundown of what economists at major banks are saying in reports and interviews about the world economy in 2018 and 2019. While most acknowledge the risks to their estimates have grown, they still see expansions rates of just below 4 per cent this year and next in what would be the best back-to-back performance since the turn of the decade.
The predictions are mostly in terms of purchasing power parity, the metric favoured by the International Monetary Fund (IMF), which will next month reissue fresh forecasts after July’s prediction of 3.9 per cent expansion this year and next.
* JPMorgan Chase & Co. (2018: 3.8 per cent, 2019: 3.6 per cent)
The developed market economy “as a whole is on track to deliver growth a full percentage point above our estimate of potential. Despite our constructive outlook, risks remain skewed to the downside.”
Bruce Kasman, chief economist
* Morgan Stanley (2018: 3.9 per cent, 2019: 3.8 per cent)
“While global growth is tracking above trend and in line with the forecasts in our mid-year outlook, the underlying tensions in the global economy have risen, adding to investors’ worries about the cycle. Our base case forecast remains that global growth will moderate, but stay above trend.”
* Deutsche Bank Group AG (2018: 3.9 per cent, 2019: 3.8 per cent)
“The recent readings of both soft and hard data from the US shows that growth momentum will continue and the European data has also been surprising to the upside more recently. The negative impact of tariffs will subside within a few quarters, which should limit the negative impact on global growth. There are some downside risks to the global economy mainly emanating from the current emerging market crisis and geopolitical tensions, but these risks seem manageable at this point.”
Torsten Slok, chief international economist
* Citigroup Inc. (2018: 3.9 per cent, 2019: 3.9 per cent)
“We expect second half global growth to be relatively solid, but risks are clearly tilted to the downside, including as capex momentum has stalling. We expect the rest of the world to catch up somewhat with the US. In addition to bottoming growth in China, that also requires Eurozone growth to remain solid. The emerging market outlook is a major concern: growth effects have so far been limited to the most vulnerable economies.”
Pernille Bomholdt Henneberg, economist
Goldman Sachs Group Inc. (2018: 4 per cent, 2019: 3.8 per cent)
“A number of downside risks still linger. Trade tensions have become more concentrated on US-China trade, with other trade disputes taking a somewhat more constructive direction. The road to an agreement on the Italian budget is likely to remain quite bumpy and we expect significant volatility in Italian asset prices in coming weeks. While we still see a Brexit deal as the most likely scenario, the risk of a disorderly exit has increased in recent months. On a more encouraging note, the risk of a systemic financial crisis still looks low.”
Jan Hatzius, chief economist
* Bank of America Corp. (2018: 3.9 per cent, 2019: 3.9 per cent)
“The strong growth reflects a combination of improving confidence and continued super easy monetary policy. Consumers and firms have learnt to look through the political and geopolitical news. US tax cuts and spending increases are an additional double dose of caffeine.”
Ethan Harris, chief economist
* Barclays plc (2018: 4 per cent, 2019: 3.9 per cent)
“While global growth has slowed, momentum in developed market economies and stimulus in China led us to conclude that growth was likely to remain balanced. We expect a sizeable upward revision in second quarter growth in Japan, on account of capex, to provide further evidence in support of this view. That said, purchasing managers data globally point to a slowing in new export orders which we believe is related to fears of protectionism.”
Credit Suisse Group (2018: 4.1 per cent, 2019: 3.9 per cent)
“Global growth slowed in the first half of the year but remains at a healthy level. It is likely to accelerate gradually in the fourth quarter. Demand fundamentals among the major economies are robust. Short-term growth in China has weakened recently, but we expect it to pick up in the coming months as policy easing measures start to gain traction. US growth remains supported by fiscal stimulus.”