Investment Outlook 2019 Global economy

Global economy

Global economy

Oliver Adler

Chief Economist Switzerland

In short

Different growth tracks

The impact of US fiscal stimulus will likely peak in the course of 2019, but growth should remain above trend on the back of robust corporate capital expenditure, hiring and wage growth. In China, however, we are likely to see growth slow towards 6%. US tariffs, sluggish manufacturing investment and slowing consumption growth are likely to act as constraints. In Europe and Japan, still lax monetary conditions should help maintain moderate growth momentum. But in a number of emerging markets, growth looks set to remain subpar as policymakers focus on inflation and currency control.

Inflation on the move

Notwithstanding higher capital spending, capacity constraints are likely to tighten further in most advanced economies. Given declining unemployment and intensifying labor shortages, wage growth should continue to pick up. Despite a moderate recovery of productivity growth, core inflation is thus likely to gradually move higher, with commodity prices an upside risk. Central banks will continue to respond in varying degrees, depending on domestic and external constraints.

Eye on emerging markets

How high is the risk of renewed economic and financial instability? In many advanced economies, not least the USA, the unsustainable trajectory of government debt is the major longer-term risk. However, barring instability in Italy, a crisis seems unlikely because household and bank balance sheets have improved since 2008, while corporate balance sheets have only modestly deteriorated. In China, high debt levels should slow growth rather than spark a crisis. Stress is more likely to resurface in financially fragile emerging markets.

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