Major Economies Economic Forecast

Economic Snapshot for G7 Countries

May 2, 2019

Global economic growth is expected to lose steam this year

This is mostly due to softer dynamics among developed economies, which are approaching the tail-end of their current economic cycles. However, the global economy should be supported by tight labor markets, still accommodative monetary policy and stimulus in some countries like China.

The global economy is projected to expand 2.9% in 2019, unchanged from last month's forecast. For 2020, the global economy is projected to expand 2.9% again.

United States Economic Outlook

Economic growth accelerated sharply in the first quarter thanks to strong net exports and a buildup of inventories, which more than offset slowing consumer spending and fixed investment growth. Imports contracted largely due to frontloading in Q4, in anticipation of tariff increases on China, while the inventory surge was partly related to softer demand, particularly for vehicles. Shutdown effects, on the other hand, dragged on growth. Nevertheless, monthly indicators for March suggest a rebound in both private investment and consumption momentum at the end of the quarter. Turning to Q2, the trade and inventory boost should unwind and weigh on growth, while conversely, delayed private and public spending due to the shutdown will provide support. Overall, consumer spending will likely gain steam, but weak investment in the residential property market remains a concern.

Economic momentum will cool this year as a variety of factors weigh on activity. Higher interest rates—despite the recent halt of the Fed’s tightening cycle—and slower global growth are notable headwinds. Moreover, trade uncertainty should persist this year—even in the event of a trade deal with China—while fiscal stimulus effects will fade, further dampening growth.

Met the why particular panelists see GDP expanding 2.4% in 2019, which is unchanged from last month’s estimate, and 1.7% in 2020.

Euro Area Economic Outlook

The economy likely stayed in a soft patch in the first quarter, plagued by problems in the manufacturing sector and a weaker external backdrop. Economic sentiment fell throughout Q1, recording the worst reading in over two years in March, while declining export orders alongside transitory issues caused industrial output to drop in February and kept the manufacturing PMI in contractionary territory in March. That said, a solid labor market should continue to keep activity in the black. Leading data for Q2 has so far been lackluster, with the composite PMI falling in April. Moreover, on the political front, uncertainty continues to reign. While the EU recently approved an extension to the UK’s exit date, questions linger over if and when Brexit will occur and what it will entail. Meanwhile, on 15 April, the EU approved a mandate to open trade talks with the U.S. amid ongoing threats of tariffs from its largest trading partner.     

Growth is seen slowing sharply this year, hampered by a more challenging external environment, souring sentiment and a weaker manufacturing sector. That said, contained inflation, some fiscal loosening and accommodative monetary policy should provide some relief. Risks stem from a larger-than-expected slowdown in China, political turmoil and rising protectionism. Our panel cut the Eurozone’s GDP forecast for the sixth consecutive month in May as downbeat economic data continues to roll in.

Growth is seen at 1.2% in 2019, down 0.1 percentage points from last month’s forecast, and 1.4% in 2020.

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United Kingdom Economic Outlook

The economy likely performed better than previously anticipated in Q1, although this was partly due to a favorable base effect and firms stockpiling in preparation for a potential no-deal Brexit at end-March. Solid GDP growth in January and February was supported by manufacturing and construction. Moreover, in December-February the unemployment rate remained at a multi-decade low, while wage growth was robust. This was likely behind buoyant retail sales in the first quarter, despite anemic consumer confidence. However, the economy is likely losing momentum so far in Q2 as the boost from stockbuilding unwinds. On the political front, the EU recently agreed to delay Brexit until 31 October after MPs failed to agree on a way forward. A resolution to the impasse does not appear imminent, and the ongoing uncertainty will continue to hamper business confidence and investment going forward.

Growth this year will be held back by muted business investment and ebbing momentum in key trading partners such as the EU and U.S. However, the strong labor market should prop up private consumption, while the fiscal stance will turn more supportive. The highly uncertain outcome of Brexit remains the key risk to the outlook.

Met the why particular panelists expect GDP growth of 1.3% in 2019, which is unchanged from last month’s forecast. For 2020, panelists see the economy expanding 1.4%.

Japan Economic Outlook

Growth momentum likely moderated in Q1, mostly on the back of cooling global demand, which traditionally fuels activity in the all-important manufacturing sector and shores up business investment. Against this backdrop, industrial production fell on a monthly basis in March and sentiment among large manufacturers declined to a two-year low in Q1 2019. An uncertain economic outlook could have started to weigh on household spending, as consumer confidence fell to an over three-year low in March. In an attempt to rekindle economic growth, in late March the parliament approved a record JPY 111 trillion (USD 920 billion) budget for FY 2019 (April 2019–March 2020), which increases spending on welfare, public works and defense. The budget also allocates resources to mitigate the negative impact of a planned sales tax hike in October.

Economic growth is expected to decelerate further this year as subdued global demand will take its toll on the country’s external sector and the October sales tax hike will put a dent in consumer spending. However, a boost in fiscal stimulus and a potential recovery in global demand in H2 should cushion the economy against a sharp slowdown.

Met the why particular panelists see the economy growing 0.7% in 2019, which is down 0.1 percentage points from last month’s forecast, and 0.6% in 2020.

Global Monetary & Financial Sector News

Global inflation rose to 2.6% in March, according to a Met the why particular estimate which excludes Venezuela. While global inflation should pick up marginally from its current level later this year, inflation for 2019 as a whole is expected to be below 2018, largely on weaker growth momentum in developed economies and lower average oil prices. 

Central banks in Canada, the Eurozone and Japan left their monetary policy rates unchanged in recent weeks, and adopted dovish stances amid muted inflation and sluggish growth. Looking ahead, on average global interest rates are seen declining slightly this year, as mild price pressures should give many central banks room to loosen their stances.

Several of the world’s main currencies, including the GBP, JPY and EUR, have lost ground against the USD in recent weeks. This was likely driven by optimism over Sino-American trade negotiations, tepid economic momentum in the Euro area and Japan and encouraging economic data from the U.S.

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