Global Economic Outlook - November 2019

Global economic growth is slowing and becoming increasingly fragile. As the trade war weighs in, global trade and investment are down. External-facing businesses and industries are grappling with uncertainty, but these challenges have not (yet) severely constrained private consumption. Steady domestic demand, especially in advanced economies, will be the key to avoiding recession in 2020.

Key points

• We forecast global GDP growth to expand 2.5% in both 2019 and 2020 – a remarkable slowdown from the 3.2% measured in 2018. The world trade slowdown, made worse by the US-China trade conflict, is behind the deceleration

• Eurozone GDP growth is slowing considerably to 1.1% in 2019 and 2020, from 1.9% in 2018. The US economy is also losing momentum with GDP growth easing from 2.2% in 2019 to 1.6% in 2020. With Brexit-related uncertainty ongoing, the UK will expand only slowly: 1.3% in 2019 and 1.1% in 2020
• Emerging markets are also facing a slowdown due to the weak global trade environment as well as country-specific issues. As a whole, we forecast GDP growth across EMEs to ease to 4.0% this year, from 4.7% last year, before recovering only slightly to 4.3% in 2020. Emerging Asia will continue to post the fastest growth rates as Latin America’s recovery drags on 
• The late-cycle downturn in the global economy is translating to an uptick in business failures. We forecast insolvencies to increase 3.0% in 2019 and by at least another 2.6% in 2020

Chapter 1 presents the global macroeconomic environment, how we expect it to develop over the remainder of 2019 and in 2020. Global GDP growth was already expected to ease in this period as US fiscal stimulus fades, but the US-China trade war is pushing it lower than previously expected. World trade is grinding to a halt as policy uncertainty stunts business investment. From 3.4% in 2018, we now forecast a contraction of 0.6% in 2019 and only a modest recovery to 1.5% in 2020. This grim outlook is on assumption of no further escalation of the trade war. Economic growth rates around the world are slowing but household consumption in North America and Europe is holding up thanks to historically strong labour markets. This should keep the hypothetical Recession of 2020 at bay, but with growth leaning on only one contributor, it is more fragile. 

There are several risks that could cause our outlook to deteriorate or even spur a recession. The most prominent risk remains that of trade war proliferation. Barriers between the US and China have escalated significantly through 2019 and while a ‘phase one’ deal is in place, escalation is not off the cards. An extension to new fronts, especially the EU, could drive down global growth. Related but broader, policy uncertainty has become the second largest risk. A deceleration of growth in China beyond the authorities’ control is the third most significant risk followed by Fed policy missteps or miscommunication. Finally, a supply-side shock to the oil price remains a threat to our economic outlook.   

Advanced economies are facing broad slowdowns in 2019 and 2020, as presented in chapter 2. Amid high uncertainty and lower global trade, trade and investment are contributing less or even contracting from GDP growth. Extremely tight labour markets and rising real wages though are underpinning household spending, which is keeping growth firmly in the black. This is the case at the eurozone level, in the US, and even the UK in the face of Brexit uncertainty. In Japan, consumers are facing domestic challenges as well due to a VAT increase, which will bring the economy to a near standstill in 2020, but government support should help avoid a contraction.

In chapter 3, the outlook for emerging markets across all major world regions is presented. EMEs are also facing slower growth in 2019 and a weaker-than-expected recovery in 2020. The weaker external environment, especially slowing demand in China, is weighing on growth but there are also major country-specific issues that are holding down growth – especially in major economies like Brazil and Turkey. Domestic demand will help some countries, especially in Eastern Europe, avoid deeper slowdowns but it is more the higher aggregate growth rates that ensure recession avoidance. 

We present our insolvency outlook in chapter 4. It has deteriorated sharply in line with the global slowdown. We have long predicted that 2019 would be the turning year in the insolvency recovery cycle from the Global Financial Crisis. But with global trade facing a standstill, we have revised our forecast upwards. North America is the main contributor to higher global insolvencies but the rising trend is spanning all regions.