Global economy remains on track in 2018-2019

Despite the relentless media hype focused on a downtrend in economic indicators, global growth remains on track for now and the IMF expects it to reach 3.9% in 2018, representing a modest annual improvement of 0.1%. The impact of US protectionist measures and the decrease in the positive contribution from expansionary fiscal policies in 2019 should, however, cap global growth at 3.9%. Furthermore, the ongoing monetary tightening cycle in the United States and the end of quantitative easing in the eurozone are expected to have a number of consequences — some unintended — for all asset classes.

While global growth was revised upwards in 2017, it is clear that this will not be the case in 2018. The blissful optimism at the start of the year has given way to a  harsh reality check for certain regions such as the eurozone, Japan and emerging countries. Cyclical indicators in the euro-area have decelerated from their Q4 2017 peak and have fallen short of economists’ expectations since the beginning of the year. We can nonetheless expect a marginal improvement, or at least a stabilisation, in the coming months. China’s central government continues to manage the country's growth effectively, and is working hard to curb the overheating in certain sectors such as infrastructure and real estate. The growth target of 6.5% should therefore be reached in 2018, mainly due to domestic consumption and investment expenditure. However, this target represents a decline from the previous year, which saw 6.9% growth.

In the context of downward revisions of growth outlooks, only the United States has emerged unscathed. The tax cut likely explains economists’ optimism about the land of Uncle Sam, while the numerous political crises in the eurozone are no doubt behind the general pessimism about the region. Odds are, however, that this apparent disconnect will not last. US consumption could be adversely affected by more severe inflation, in particular as the recent rise in oil prices could shrink US households’ purchasing power, and partially wipe out the positive effects of the fiscal stimulus on growth.