MARKET. ANALYSIS. PROGNOSES. Global Economic Forecasts Not Very Optimistic, but Not the Worst Case Scenario


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Growth momentum in many of the world’s economies might have peaked in 2018 and global expansion was projected to start cooling down gradually. Global real GDP growth was forecast at 3.8 % in 2018 (a pace similar to 2017), declining to 3.5 % in 2019–2020. Forecasts for many advanced economies have been downgraded since our previous quarterly forecast following worse than expected performance in 2018 and rising trade tensions. Advanced economies’ real GDP growth was anticipated to remain strong in 2018 (at 2.3 %) and decline to 1.8–2.0 % annually in 2019–2020. Emerging economies’ outlook has been adversely affected by the worsening global trade and external financing conditions, as well as lower investor confidence for countries such as Argentina and Turkey. Emerging economies’ GDP were estimated to grow by 5.0 % in 2018 and are expected to slow to 4.8 % in 2019–2020.
Overall global risk outlook has worsened since August. Escalating trade barriers, higher political risks, and worsening financial market conditions could further reduce growth across advanced and emerging economies alike.
Better than expected performance has led to the US real GDP growth upgrade to 2.9 % in 2018. However, trade tensions with China have escalated, justifying a reduction in the 2019 forecast to 2.4%. The Eurozone outlook has continued to deteriorate and has lost its strong momentum from 2017. Real GDP was forecasted to increase by 2.0 % in 2018 and afterwards to slow to 1.8% in 2019. The UK economy picked up pace, aided by warm weather. The real GDP growth forecast has been raised to 1.4 % in 2018 and 1.5 % in 2019. However, the outlook is dimmed by lingering Brexit uncertainty. Japan is expected to start feeling the effects of the slowing global economy and China-US trade war. The GDP growth forecasts were at 1.1 % for 2018 and 1.0 % in 2019. Uneven economic recovery in Brazil and the apparent lack of tangible measures to kick-start the economy have prompted a downgrade in real GDP growth forecasts to 1.4 % in 2018 and 2.2% in 2019. China’s economy continues to slow down gradually, consistent with a soft landing. However, rising trade tensions have worsened the outlook. We forecasted GDP growth of 6.6 % in 2018 and 6.1 % in 2019.
Higher oil prices had a favourable effect on the Russian economy, so did rising private consumption and net exports. Real GDP was expected to grow by 1.7 % in 2018, followed by a slow-down to 1.5 % in 2019. India has emerged from disruptions caused by demonetisation and GST, accelerating to a pace unseen in two years. GDP growth forecasts have been lifted to 7.7 % in 2018 and 7.6 % in 2019

Major forecast revisions

The GDP growth forecasts for 2018 were downgraded. Private sector confidence declined further before the presidential election, industrial production dropped in September and inflation has increased. This puts further pressure on the central bank to raise interest rates. While the new government of Jair Bolsonaro is likely to implement more private sector and investor friendly policies, it faces significant barriers to legislation due to a divided Congress.

Economic activity increased at the fastest pace in more than two years during April–June 2018, mainly due to faster consumption growth. This better-than-expected recovery from the previous demonetisation and the Goods and Services Tax overhaul shocks have led to an upwards revision of our GDP growth forecasts – to 7.7 % in 2018 and 7.6 % in 2019.

The new Italian government presented its first budget in late September, with a budget deficit of 2.4 % of GDP – three times higher than the 0.8 % targeted by the previous government. The new budget has spooked bond markets, with Italian borrowing costs rising to around 3 percentage points higher than Germany’s. The Italian government has refused to compromise on its budget so far, therefore, the higher Italian interest rates are likely to persist. The negative impact of higher interest rates on private sector investment are likely to slightly outweigh the stimulus effects of higher government spending and lower taxes. As a result, we had reduced Italy’s expected GDP growth forecast to 1 % for 2018, expecting for 0.8 % in 2019

General outlook

US GDP increased by almost 3 % year-on-year in the last 2 quarters, leading to a slight upwards revision in the growth results we forecasted for 2018. However, trade tensions with China have escalated. In September, the US imposed 10 % tariffs on another 200 billion USD of imports from China, rising to a 25 % tariff in 2019. The impact on 2018 GDP growth was negligible, but the higher 2019 tariffs justify a reduction of around 0.2 percentage points in the output growth forecast. Consumer spending is still rising faster than the long-term trend, and business investment is still expanding robustly. But the effects of the fiscal stimulus are likely to diminish in 2019. In our baseline forecast, 2018 US GDP growth was expected to reach 2.7–3 %, declining to 2–2.8 % growth in 2019 and 1.4–2.6 % growth in 2020. Afterwards, annual GDP growth settles at a long-term rate of 1.1–2.1 %.
The outlook for the Eurozone has continued to deteriorate since August. The economy has lost its strong momentum from 2017, when growth significantly outperformed expectations. In our baseline forecast, GDP growth was forecasted to increase by 1.9–2.1 % in 2018. Afterwards, output is expected to rise by 1.4–2.2 % in 2019 and by 1.1–2.1 % in 2020. Long-term growth over 2021–2026 is likely to stay within an average annual rate of 0.8–1.8 %.
Labour markets have improved further with the average unemployment rate now close to that from late 2008. Business investment is still rising faster than its long-term trend, supported by low financing costs, higher profit margins and stronger aggregate demand conditions. Financing costs remain low with the exception of Italy, whose borrowing costs relative to Germany have spiked following the recent government budget plans. However, consumption growth has been relatively slow, and overall GDP growth has declined to 1.7% year-on-year in Q3 of 2018. Private sector confidence indices have also declined. The deterioration of the global demand and trade outlook since 2017 has dampened prospects for exports. Recent declines in Eurozone stock markets also signal significant uncertainty about the region’s economic outlook.
The UK economy picked up pace in Q3 2018, as real GDP growth accelerated to 1.5 % from 1.2 % year-on-year in Q2. Private consumption, a key growth driver, accelerated from 1.4 % in Q2 to 1.6 % year-on-year in Q3 2018, aided by more rapid wage growth and higher consumer sentiment during the summer. Fixed investment showed rather flat development with zero growth in Q3 2018, while export growth slowed to 0.7 % year-on-year as the previous year’s boost from the weaker pound continued fading away.
After some amelioration during the summer, consumer sentiment dropped again in September and October. If sustained, the recent signs of faster wage growth could prop up consumer optimism. Business confidence, meanwhile, reached a two-year low in September. The on-going Brexit uncertainty is expected to continue depressing business investment decisions. Going forward, economic growth is forecast to remain subdued. In our baseline, which assumes a transition to final trade deal after 2020, we forecasted real GDP growth at 1.4 % in 2018 and 1.5 % in 2019. The possibility of chaotic Brexit remains a principal risk to the UK Outlook.
Japan’s economic performance has been recently supported by healthy capex on the back of companies upgrading to labour saving equipment to cope with labour shortages, as well as infrastructure development ahead of the Tokyo Olympics in 2020. However, in Q3 2018, the economy started feeling the effects of the slowing global economy and China-US trade war, as well as the influence of temporary factors such as natural disasters disrupting manufacturing production, tourism and consumer activity.
Inflation has reached over 1 % in the last few months, with most of the gains coming from increased fuel prices. Retail sales have also been stronger recently, led by healthy sales of machine tools, food and clothing. At the same time, real wages edged down in August–September 2018, depriving consumers of purchasing power. In addition, natural disasters and global trade frictions have negatively affected industrial production in Q3 2018, all of which translates into a dull outlook for Japan’s consumption and foreign trade.
China’s economy has slowed down gradually in 2018. Rising trade tensions with the US and the associated uncertainty have been a key factor in a worsening outlook.
Most of the recent slowdown is consistent with a soft landing, in line with previous long-term forecasts of lower growth as China converges to advanced economies. In our baseline forecast, GDP was supposed to increase by 6.5–6.7 % in 2018, by 5.6–6.6 % in 2019 and by 5.2–6.6 % in 2020. Our long-term annual economic growth forecast for 2021–2025 remains 4.8–5.8 %.
Rusia’s real GDP continued to accelerate in Q2 2018, showing 1.9 % year-on-year growth, relative to a 1.3 % in Q1 2018 and 1.0 % in Q4 2017. As before, in mid-2018 the dynamics of oil prices have had a favourable effect on economy. The average Brent price in Q2–Q3 2018 was about USD75 per barrel, which is almost 50 % more than a year earlier. Growing final consumption expenditure and, especially, rising net exports were the main contributors to the GDP growth improvement in Q2. The increase in consumption was mainly buoyed by recovery in real wages and consumer lending. For exports, a noticeable impact was provided by the FIFA World Cup, which boosted the turnover of catering, transport and accommodation service.
In Q3 2018, we expected real GDP growth to slow down, mainly due to unfavourable dynamics in agriculture (following a poor harvest this year compared to last year) and the fading World Cup effects. In our baseline, we expected real GDP to grow by about 1.7 % in 2018, slowing down to around 1.5 % annual growth over 2019–2020. Net exports were expected to continue to be the main driver of the economy in the second half of 2018. This is primarily caused by growth of hydrocarbon exports and reduction of imports, amid weakening of the rouble and a slowdown of investment activity after the completion of large-scale construction projects. Since July, the OPEC+countries, mainly Saudi Arabia and Russia, have begun to increase oil production to compensate for the shortage of oil in the market following a reduction in exports from Iran.
Brazil’s economy continues to slowly recover, with Q2 2018 real GDP growth of 1.0 % year on year affected by the May truckers’ strike. Export growth was affected the most, moving into negative territory due to the strike. Consumption and investment growth also slowed down, although to a lesser extent. Brazil’s presidential race wound up on 28 October, with Jair Bolsonaro, a far-right congressman, beating leftist Fernando Haddad with 55 % of votes. Investor and consumer confidence rebounded on the news, strengthening the Brazilian real estate after it reached all-time lows in September due to rising US treasury bond yields, stronger US dollar and increasing oil prices. Inflation has stood near the government target of 4.5 % for the last few months, and we expect it to stay there in 2019. Benchmark SELIC interest rate has also been steady at 6.5 %, as the Central Bank is in no hurry to increase interest rates on the back of a slow rise in inflation and underwhelming economic recovery.
The economy of India has accelerated to a pace unseen in two years as real GDP growth reached 8.0 % y-o-y in Q2 2018. This implies that India has finally recovered from the shocks caused by demonetisation and the Goods and Services Tax over the last couple of years. The real GDP performance has been boosted by robust private consumption growth, which increased from 7.2 % in Q1 to 7.9 % y-o-y in Q2 2018. Fixed investment growth slowed down from 13.8 % in Q1 to 10.4 % y-o-y in Q2 2018, however it remained a strong GDP growth driver. Meanwhile, public consumption growth halved and net exports continued to drag down the overall growth.
The rising oil prices have prompted a widening trade gap, as India is dependent on oil imports. The 12-month trade deficit reached USD1 75.9 billion in August 2018, a level unseen in several years. To narrow the external sector imbalances and support the struggling rupee, the Indian government has raised customs duties on various imports valued at USD 12 billion and has cut fuel taxes to alleviate the impact of surging oil prices. Though rising oil prices are upsetting the outlook, India’s economic growth was forecasted to firm up to 7.7 % in 2018 and 7.6 % in 2019.


Deteriorating global financial market conditions have raised the risks of Emerging Markets Slowdown or even Global Downturn. Combined with worse Eurozone financial market conditions and Italian fiscal policy tensions, it has amplified the chances of adverse Eurozone scenarios. In the US, democratic takeover of Congress suggests a lower probability of worst case Trump policies. The risk of a Global Trade War has also dropped significantly with the USMCA deal and trade talks with the EU in the picture. However, the trade risks have not gone away and they are now focused on US-China relations, with an increasing probability of US-China all-out trade war.

Prepared by ‘Euromonitor International Report’, ‘The Global Economic Forecasts’.
*Euromonitor International is a global market research company providing statistics, analysis ant reports, as well as breaking news on industries, economies and consumers worldwide.


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The magazine JŪRA has been published since 1935.
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