Will slowing global growth rebound?

“This is a delicate moment for the global economy.” An apt description of the state of play from IMF Chief Economist Gita Gopinath, speaking on the release of the International Monetary Fund’s (IMF) biannual World Economic Outlook (WEO) in early April.

IMF’s successive global growth forecasts
Downward revisions to global growth continue

CHART_1_Global_-_growth_forecasts-webVs

Source: IFM Investors, IFM April 2019 World Economic Outlook

Most investors and economists have already concluded that global economic growth peaked in 2017 and early 2018, and will soften further in 2019. Equally, at this stage, fears of imminent recession are overblown.

While it is relatively uncontroversial to expect that growth in 2019 will decelerate, it is more so expecting a rebound in growth in 2020 (and beyond). But this is just what the IMF has done, with expectations that global growth will pick back up in 2020 to 3.6%. The IMF justifies its outlook by suggesting emerging markets will be the drivers of growth over the next five years. But it does note that risks are to the downside, particularly from an increase in trade tensions among other factors, which cannot be understated in our view.

Presently, global risks appear tilted to the downside. Even as the US continues to be the standout global economic performer, on close examination we believe a subdued interpretation is warranted. Europe is presenting a fragile balancing act and, despite a robust labour market, Brexit-related risks in the UK are continuing to have a pronounced negative impact on business investment. In Japan, the looming VAT tax hike presents a significant risk to an economy that continues to show signs of weakness. In Australia, CPI inflation has disappointed in spades. And, while the RBA held its nerve at its most recent meeting, all eyes will be on how tensions between the domestic GDP and labour market data evolve.