The world economic forecast Q1 2019 and beyond

It is safe to say that 2019 has not started with the enthusiasm which we all saw at the end of 2018. Following a dismal year on the economic front, there was a great deal of optimism that 2019 would be a better year. Some of that was based on the feeling that 2019 could not possibly be worse than 2018 and therefore, had to be better.

This, it would appear, has not turned out to be the case and as such has resulted in a complete new set of forecasts being outlined for the global economy. The majority of the content has been gleaned from a report compiled by a panel of Analysts at Euromonitor International, a global market research company which provides statistics, analysis and reports on industries, economies and consumers worldwide. The report is drawn up by looking at the major economic groups and economies around the world. These include The United States, Great Britain the Euro Zone, and then the emerging markets including Brazil, Russia, India and China and then Japan. Africa, unfortunately, does not feature strongly in the report. As such, this article uses the South African situation as viewed by local experts.

The report begins with a rather gloomy outlook: ‘Annual global economic growth is forecast to decelerate to 3.5 per cent in 2019 and 2020, down from 3.7 per cent in 2018. This deterioration in our global outlook has primarily been a result of downgrades to the advanced economies, including the US and the Eurozone, but also to some emerging economies such as Mexico and Russia. The real GDP in advanced economies is estimated to grow by 2.0 per cent in 2019 and 1.7 per cent in 2020, a decline from 2.3 per cent growth in 2018. Emerging economies are anticipated to see a steadier real GDP growth of 4.6 per cent in 2019 and 4.7 per cent in 2020, which is similar to a pace of 4.6 per cent in 2018.’

While the figures for emerging economies appear overall quite positive, they are in fact, bolstered to a certain extent by the Chinese economy which is still expecting GDP growth in region of 5.9 per cent (down from 7 per cent) and the Indian economy which is expecting growth of around 7.4 per cent (down from 8 per cent in 2018). This presents a slightly unbalanced result. All the other economies are expecting figures of between 0.6 per cent at the bottom end for Japan and 2.2 per cent at the top end for Brazil.

In response to the poor growth rates, various fiscal policies have been implemented by the respective governments. The result of these policies and the reaction by the markets may see inflation rates rise. Some governments are likely to respond by increasing interest rates, while others look for other measures to aid their economies.

Looking at specific economies the report showed the following:

The United States
‘The US economy ended 2018 with growth approaching 3 per cent. US private sector confidence remains above average, the unemployment rate is close to 4 per cent, and real wage growth has increased to a still modest 1 – 1.5 per cent per year. Domestic demand growth continues to run faster than trend growth, with consumption rising at around 3 per cent year-on-year recently and the 2018 corporate tax cuts are still providing a modest stimulus to business investment.’

The Eurozone
‘The Eurozone economy appears to be slowing down close to its long-term trend growth in 2019–2020, with rising downside risks. Our baseline forecast for Eurozone GDP growth is 1.2 – 2 per cent in 2019, followed by 1 – 2.1 per cent growth in 2020. Annual GDP growth in 2021–2025 is expected to be 0.8 – 1.8 per cent.’

Great Britain
‘The beginning of 2019 saw a number of negative reports impact the UK economy. The preliminary estimates show that real GDP growth decelerated from 1.6 per cent in Q3 to 1.3 per cent year-on-year in Q4 2018, nearly the slowest in six years. In Q4 2018, private and public consumption made positive contributions to GDP growth, while investments and net trade contributed negatively.

‘Over the last five years, UK economic growth has gone from the top to the bottom of the ranking among the G7 economies. The growth has particularly slowed down since the Brexit referendum in June 2016, weighed down by uncertainty.’

China
‘China has started 2019 with growing concerns about a domestic demand slowdown and the negative impact from the US-China trade war on exports. Chinese government officials have tried to appear optimistic especially about the continuation of economic rebalancing, though consumer spending has also decelerated in recent months. Fiscal stimulus remains modest so far, mainly consisting of targeted consumption and business tax cuts.

‘GDP growth is expected at 5.6 – 6.5 per cent in 2019 and 5.2 – 6.5 per cent in 2020, followed by annual growth of 4.5 – 6 per cent in 2021–2025, based on official GDP data.’

The concern through all of this is that a number of economies around the world may actually stagnate. The fear thereafter is a slide into full-blown recession, although there appears to be enough positive sentiment to suggest that this will not actually happen.

In the local market the political factors at play continue to bring additional pressure to bear on the economy. The fact that this is an election year brings with it the same old concerns which arise every election year and this plays a significant role on investment with companies opting to play a ‘wait-and-see’ game before committing to any significant outlays.

That said, the general consensus among economists is that the South African GDP will improve from the 0.7 per cent for 2018 to around 1.5 per cent in 2019 and up to 2.1 per cent in 2020. On the reverse side of that inflation is expected to increase from 4.6 per cent to 5.2 per cent. The situation is further exacerbated by the constant fluctuation of the Rand to the major international currencies. On 6 September 2018 the Rand to the US Dollar hit a low point at R15.32 to the Dollar. On 1 February 2019 it was at R13.26 and on 12 April it was at R13.94. The exchange rate to the other major currencies showed similar extreme highs and lows but no sign of stability.

This article does not claim to offer a solution, that requires far more in-depth study than a report of this nature could possibly provide. It is nothing more than a snapshot of the situation as it stands and a simplistic attempt to take a brief glimpse into the future.