Global economic growth will slow in 2019 and 2020 to a little under 2.9%, from an estimated 3.3% in 2018 and 2017, says Moody's Investors Service.
In addition, a slowdown in global trade amid rising trade tensions will have an adverse impact not only on growth in the US and China, but also on growth in open economies such as Japan, Korea and Germany, it said in its report “Global Macro Outlook: 2019-20: Global growth to decelerate amid tightening global liquidity and elevated trade tensions”.
"Growth in advanced economies will slow but remain solid in 2019, while G20 emerging markets growth will remain weak," says Moody's Vice President Madhavi Bokil, lead author of the report. "In the US, waning fiscal stimulus, the ongoing removal of monetary accommodation and more restrictive trade measures will lower growth. The euro area will also see cyclical moderation to trend growth. Among G-20 emerging market countries, Turkey and Argentina will experience contractions, while China will experience a slowing economy."
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Gradual removal of monetary policy accommodation by major central banks will continue to have large spillovers outside the currency areas. As major central banks start to rescind forward guidance and withdraw monetary accommodation, financial volatility, term premia and credit spreads will increase globally. Moody's baseline forecasts assume this will occur relatively smoothly, occasionally interrupted by stints of financial market volatility.
Moody's expects trade and geopolitical frictions between the US and China will likely persist for some time. This will weigh on global trade growth and will reshape trade flows and supply chains. In contrast, the new North American trade agreement, USMCA, will be ratified in 2019, with agreement on rules of origin, conflict resolution, agriculture and government procurement.
Here’s a quick highlight and summary of the report from Moody's:
Economic growth will decelerate across advanced and emerging market economies.
In the US, the ongoing removal of monetary accommodation, waning fiscal stimulus, and restrictive trade policies will start weighing on financial markets and economic activity. Other advanced economies will also see cyclical moderation toward trend growth. Slowing global trade will have an adverse impact on open economies including Japan, Korea and Germany.
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We expect global growth to slow to under 3.0% in 2019 and 2020, from an estimated 3.3% in 2017-18. Real growth in G-20 advanced economies will decelerate from around 2.3% in 2018 to 1.9% in 2019 and 1.4% in 2020. Growth in G-20 emerging markets will decline from an estimated 5% in 2018 to 4.6% in 2019, followed by a pick up to 4.9% in 2020. Contractions in Turkey and Argentina, as well as slowing in China, will pull down aggregate G-20 emerging markets growth in 2019.
Gradual quantitative tightening by major central banks will continue to have large spillover effects outside the currency areas.
As major central banks start to rescind forward guidance and withdraw monetary accommodation, global financial volatility, term premia and credit spreads will gradually rise. Our baseline forecasts assume that this will happen relatively smoothly, occasionally interrupted by bouts of financial market volatility resulting from portfolio rebalancing by international investors.
However, the possibility of a sudden and disorderly snap back in medium- to long-term interest rates is a major risk to global growth.
Trade and geopolitical disputes between the US and China will worsen in 2019, in our view.
The United States-Mexico-Canada Agreement (USMCA) will likely be ratified in 2019, with agreement on rules of origin, conflict resolution, agriculture and government procurement.
In contrast, we expect that the US-China trade conflict is unlikely to be resolved any time soon. We assume that the recently imposed tariffs on $200 billion worth of Chinese goods will likely rise from 10% to 25% in January 2019, as announced. In both countries, the overall direct macro impact on growth will be manageable.
However, persistent and broadening tensions between the two largest economies globally are increasingly likely to have widespread negative implications by undermining investment globally.
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