First quarter 2019 global macroeconomic outlook

June 2019

Three primary concerns face the global economy: 1) uncertainty related to the U.S. economy and policies; 2) declining growth in China, along with uncertain fiscal and monetary policies; and 3) political uncertainty in Europe and risks related to the U.K.’s exit from the European Union.

  • The U.S. has experienced largely stable growth since the end of the financial crisis, but at levels below prior recoveries. The economic expansion has been long and it is inevitable that growth will eventually slow in the U.S., particularly as the impact of the tax cuts wane. The markets have largely cheered the Fed’s recent decision to “pause”, but the question remains whether or not it is too early to stop tightening policy and if the rally in risk assets is sustainable. Gridlock remains in Washington as seen by the recent government shutdown with uncertainty related to policies on tariffs, immigration, and strategic alliances remaining.
  • China continues to manage a repositioning and slowing of its economy, which could have a meaningful impact on countries that depend on its trade. High debt, particularly in the corporate sector, and recent tariffs between China and the U.S. remain key issues. Trade tensions and overall slowing global demand has already started to affect China as seen through recent trade data. The recent additional policy support could help the economy in the short-term, but may undermine efforts to reduce debt.
  • Elections in Italy and recent protests in France show that unrest remains in Europe. Conflict has already materialized between Italy and the European Commission over Italy’s budget proposal. Given that Italy is the world’s fourth largest bond market and the third largest economy in Europe, what happens there matters, with a debt crisis or departure from the euro having far-reaching effects. The on-going negotiations of the U.K. to leave the EU is another key issue.