Slowing Global Growth – Diverging Fortunes

market analysis

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By

Paul Ashworth, Managing Partner
David Clark, Director
Tristan Bowman, Manager


Posted 25 January 19

12-months ago global growth reached a post-recession peak as we experienced synchronised global growth across many different countries.

As we enter 2019, we expect that global growth will slow from these high levels as the leading indicators of G7 growth and the Purchasing Managers' Index, enter decline.

Slowing growth will drive greater divergence between countries, with synchronised growth disappearing into the rear view mirror.

Countries like Japan may see further acceleration in growth, albeit at a low absolute level, as record-high corporate profits and labour shortages drive business investment. Whereas, many emerging market economies will likely see growth inhibited by a tightening in global debt markets.

Global Trade Volumes

Slowing Growth for US and China

US growth should stabilise at higher levels than many other regions, as the economy continues to benefit from the tail end of domestic fiscal stimulus and corporate tax cuts, but the year-on-year growth comparisons make it difficult for growth to surprise to the upside. Regardless, US growth will continue to be the envy of other developed countries.

In China, a slowdown in exports growth will adversely impact the country's attempts to rebalance from an industrial economy to a domestically-driven services economy.

We expect that China's overall slowdown will be moderate, as a severe slowdown would catalyse the government to support the economy via fiscal and monetary stimulus.

Return of Negative Revisions

Divergent growth outcomes across the globe and the impact of trade tariffs will lead to a moderation in corporate earnings growth in 2019.

Current estimates have US earnings growth moderating from 20% in 2018 to 9% in 2019, remaining slightly higher than OECD averages.

Historically, earnings estimates are revised downwards throughout the year as individual companies fail to live up to early optimism – 2017 and 2018 were notable exceptions. We expect 2019 to see a higher number of negative revisions to earnings forecast by corporates across the globe.

G7 Leading Index and Global EPS Growth

Economic and Investment Strategy

As partners in your investment journey, it is important to us that we take the time to share key aspects of our approach and philosophy.

This article is part of our 2019 Economic and Investment Strategy Guide and one such starting point in our highly considered process that will ultimately manage downside risk and maintain the real value of capital.

For further reading of our 2019 Economic and Investment Strategy, please click one of the links below:
Quantitative Tightening – The end of cheap money
Government Intervention – First Right then Left
Debt Hangover – Credit Tap Turns Off

For more information on our approach to economic strategy or to obtain your own copy of our 2019 Economic & Investment Strategy Guide, please contact us on +613 9655 5000.