7 January 2019

The Outlook for the Global Economy in 2019

2018 is likely to be viewed as the year in which the global economic recovery began to stall as a number of factors combined to interfere with the momentum that most of the world’s leading economies had built up in previous years.  In developed economies, growth was relatively solid, particularly in the United States, where tax cuts and a strong consumer market boosted growth to a post-financial-crisis high.  In emerging markets, Asian economies continued to outperformed their counterparts in most other regions, but they too began to experience some difficulties. 

As we enter 2019, the outlook for the global economy is beginning to deteriorate and it is almost certain that overall global economic growth will slow in the coming year.  Furthermore, as the clouds gather over many of the world’s largest economies, the threat of a significant global slowdown in the coming 12 months is growing.  To assess the state of the global economy as we head into 2019, we will look region-by-region at the outlooks for economic growth in the year ahead, travelling from West to East, beginning in North America. 

  • North America: The United States economy is entering 2019 on the back of a strong performance in 2018, one that was driven by high levels of consumer spending that were boosted by the Trump Administration’s tax cuts.  While the impact of these tax cuts will wear off in 2019, thus slowing overall economic growth, a major slowdown in the US is not likely next year.  In fact the US economy is once again forecast to outperform most other large developed economies in 2019.  One risk to watch for in the United States will be the threat of a market correction, one that might already be underway.  Meanwhile, the Canadian economy is forecast to record slightly lower growth in the coming year, although the recent USMCA trade deal has staved off a potential threat to that country’s economy.
  • Latin America: The past five years have been very difficult for the Latin American economy.  Since 2014, Latin America’s economy has averaged annual economic growth of just 0.7%, a lower rate of growth than any other region in the world. Looking ahead, growth is forecast to accelerate in this region, but not by much.  In the region’s two largest economies, Brazil and Mexico, new presidents will seek to revive their countries’ sluggish economies by very different means, but both countries will continue to underperform their potential next year. Elsewhere, relatively low commodity prices will hold down economic growth across the region, while important countries such as Venezuela and Argentina will both suffer deep recessions, with the former suffering a near-total collapse of its economy.
  • West Europe: Europe’s economic revival has begun to lose steam as growth slowed sharply in the third quarter of this year. While some of the factors behind this slowdown were temporary, the fact is that Europe is headed for another slowdown in 2019, one that could prove worse than expected.  The region’s second-largest economy, the United Kingdom, is forecast to experience severe economic disruptions due to the mess surrounding Brexit.  Germany, the region’s recent economic powerhouse, will also record lower rates of growth next year as its competitiveness advantages over its neighbors are reduced.  Italy, and to a lesser degree France, will suffer from an overall lack of economic competitiveness, while the region’s fastest-growing large economy, Spain, will see growth continue to slow in 2019.
  • Central and East Europe: Economic growth in Russia is forecast to remain below two percent once again in 2019, the eighth consecutive year in which Russian economic growth will fail to reach that level in the region’s largest economy.  Low oil prices and the prolongation of economic sanctions will combine to prevent an economic recovery in Russia for at least another year.  Meanwhile, political uncertainty and a lack of foreign investment will continue to hold down other economies in this region, such as Ukraine and Belarus, both of which could suffer from yet another major crash in the months ahead.  In contrast, Central European economies will continue to grow at a solid pace, although the threat of overheating is becoming a serious risk for that sub-region.
  • Middle East and North Africa: Another region that has seen its economy struggle in recent years in the Middle East and North Africa.  Hopes were raised when oil prices rose earlier in the year, but the collapse of oil prices in the final quarter of 2018 has raised the likelihood of yet another difficult year for this region’s oil-producing countries. In fact, without a major increase in the price of oil, economic growth in countries such as Saudi Arabia will remain quite low, while others, such as Iran, will not only have to deal with lower oil revenues, but also the impact of economic sanctions.  For the region’s more diversified economies, growth will also be disappointing for many in 2019, particularly Turkey, which has already seen a sharp slowdown in recent months.
  • Sub-Saharan Africa: As a region that is dependent upon the exporting of natural resources for much of its growth, Sub-Saharan Africa’s economy has found it difficult to record much growth in recent years. Worse, this region’s population is still expanding rapidly, meaning that per capita GDP growth has been almost non-existent, thus causing poverty rates to remain high.  There have been some bright spots in this region, such as East Africa and a handful of West African countries, and these economies are forecast to continue to expand at a strong pace in 2019.  However, the region’s largest economies, including Nigeria, South Africa and Angola, will once again record very little growth in the year ahead.
  • Central and South Asia: India’s economy has experienced many ups-and-downs over the past two years, a degree of volatility that has surprised many.  In fact, India’s economic performance has been somewhat disappointing, despite the fact that it has outgrown nearly all other large economies in recent years. In 2019, growth is forecast to accelerate slightly, but a number of factors (most notably 2019’s national elections) could further destabilize the Indian economy.  Outside of India, Bangladesh will remain one of the world’s fastest-growing economies, but political uncertainty will hold down economic growth in key countries such as Pakistan and Sri Lanka.  For the rest of the region, natural resource prices will play a major role in determining their level of economic growth in 2019.
  • East Asia and Pacific: Finally, we come the region that is responsible for driving nearly half of the world’s economic growth, East Asia and the Pacific.  In China, the region’s dominant economy, real economic growth is slowing and 2019 could prove to be a tumultuous year as both domestic and export growth slow, as they have done in recent months.  In Southeast Asia, weaker export demand is forecast to result in slightly lower rates of growth in 2019, but this sub-region will remain a key driver of global growth.  In Japan, economic growth will slow again in the year ahead as domestic demand continues to weaken and as the outlook for exports is uncertain.  Other developed economies in this region, including South Korea and Australia, have performed well in recent years, but will face many headwinds in 2019.  

Economic risk levels in the world are now higher than at any time in previous years and this elevated risk is expected to result in lower rates of economic growth in many of the world’s leading economies in 2019.  In fact, our forecasts call for lower rates of economic growth in eight of the world’s ten largest economies next year, meaning that the threat of downturn in sync will become a reality in 2019.  Worse, the threat of major disruptions to global trade and investment, and risks such as market corrections and rising debt levels, mean that the potential for a sharp downturn in growth has risen.  For the year, we forecast global economic growth to slow to 3.5% in 2019, down from 3.7% this year.  However, there is a good deal of downside risk associated with this forecast for the coming year.  What is certain is that 2019 will be yet another eventful year for the global economy and its leading players.