After an optimistic first half of 2018, escalating worries over the global economy have begun to weigh on GDP expectations for 2019 (table below). Even in the United States – where growth is predicted at 2.5% – risks have elevated. The recent stalemate between President Trump and the Democrat controlled Congress, which has seen the government shutdown stretch into an unprecedented fourth week, are increasingly seen to be damaging the economy. A weakening inflation picture, partly influenced by a downturn in oil prices, may allow the US Fed to ease up on monetary tightening in 2019. Still, the lingering trade spat with China has sent shockwaves through global stock markets with far-reaching consequences, including a pronounced growth deceleration in the Euro zone. A series of downbeat Q3 GDP data releases have renewed fears over the bloc’s resilience to tighter financial conditions.
Sharp contractions in the often-reliable industrial sector quashed German Q3 GDP activity, leaving the economy flirting with recession. Temporary auto sector bottlenecks may reverse and help support a revival, but the overriding softness in external demand may extend the soft patch. The “Yellow Vests” protests in France, prompted by opposition to fuel price rises, have undermined its prospects. Concessions afforded by President Macron may help to rejuvenate growth later in the year but will stretch France’s public finances. The outlook for the UK has remained stable, though does not encapsulate the intensifying levels of uncertainty caused by Brexit. Investment has faded, but our survey respondents still doubt that it will lead to a sizeable GDP drop-off, for now.
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Taken from Consensus Forecasts – G7 and Western Europe, January 2019.