E The Global Economy Is Decelerating, Economic Anxiety Is Increasing

“The outlook for the global economy has darkened. Global financing conditions have tightened, industrial production has moderated, trade tensions remain elevated, and some large emerging market and developing economies have experienced significant financial market stress. Faced with these headwinds, the recovery in emerging market and developing economies has lost momentum.” (World Bank, Global Economic Prospects, January 2019)

The US Federal Reserve, the World Bank, the IMF and other forecasting groups are all predicting that US economic growth will decelerate in 2019 and 2020.

The projected American slowing reflects that substantial monetary policy support has already been removed, and as well, that the recent economic growth boost from the fiscal stimulus will soon fade and become a drag on growth. The possibility of continued tariff wars is also expected to dampen the American economy, particularly in terms of exports and investment spending.

However, investors recently became a bit less concerned about the future course of interest rates due to Fed Chairman Powell’s late January decision to hold rates constant because of an updated outlook of slower global growth.

US economic growth is projected to slow this year to 2.5% and slow further to 1.8% in 2020. The 2020 growth rate is roughly in line with estimates of potential growth.

Recently nominal wage gains in the US began to outpace inflation, resulting in modest real wage gains. Although, long-term inflation expectations may have edged up a bit recently, nonetheless inflation expectations in the US continue to be rather low and stable.

The Euro Area’s economic outlook has been negatively affected by a variety of factors -- Brexit, worries about trade wars, a surprising growth slowdown in Germany and a technical recession in the Italian economy.

Euro growth softened last year to an estimated 1.8% because of an earlier appreciation of the euro combined with a slowing in its external markets. While the unemployment rate continued to drop last year, inflation remained stubbornly low. At the start of this year the pace of core inflation was around 1%, and long-term inflation expectations continued to hover around 1.6%.

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Gary Anderson 1 year ago Contributor's comment

Great charts, Arthur.

Moon Kil Woong 1 year ago Contributor's comment

The rest of the world has been in a mess for quite a while. This is nothing new. If tariff wars end it will improve. China has been slowing but that is not really news either. Hopefully, Europe will get out of its funk and Asia ex-China will rebound.