Is A Global Economic Cooldown Brewing?

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On the latest edition of Market Week in Review, Senior Quantitative Investment Strategy Analyst Dr. Kara Ng and Rob Cittadini, director, Americas institutional, discussed the recent slowdown in global growth, impacts of the five-week partial U.S. government shutdown and the effects of government stimulus in China.

2019 growth forecast: A slowdown across the globe?

Global growth forecasts for 2019 and 2020 were recently slashed by OECD (the Organisation for Economic Co-operation and Development)--due in part, in Ng's opinion, to a perfect storm of recent one-off factors. "These factors include natural disasters in Japan, emission regulation changes in Germany, yellow vest protests in France, the Turkish debt crisis and Italian budget negotiations," Ng explained, adding that some of the weakness in preliminary Purchasing Managers Index® (PMI) numbers for January--especially across Europe and Japan--can likely be attributed to this.

The ongoing trade war between the U.S. and China is probably also playing a role in the softer PMI readings, Ng said, noting that while U.S. PMI numbers have rebounded from even weaker December levels, the current readings remain below most of what was seen in 2018.

"This is actually more in line with our baseline expectation at Russell Investments," she stated, explaining that she and the team of strategists expect U.S. growth in 2019 to remain positive, yet mediocre. 2018, she emphasized, was a year of extraordinary growth for the U.S. On a global scale, Ng expects growth to stabilize or rise slightly above trend levels as the impacts of the slew of one-off shocks fade.

Impacts of recent U.S. government shutdown

The partial U.S. government shutdown, which lasted approximately five weeks, likely had a measurable impact on the nation's economy, Ng said, as 800,000 federal workers went without pay. This likely led to a reduction in consumer spending among unpaid employees, which in turn probably dampened the revenue from businesses that serviced those workers. The net effect? "First-quarter GDP (gross domestic product) may come in weaker--but once the government pays back its workers, GDP should rebound," Ng said. In short, the nation's economy likely will be no worse off, she said.

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