Slowing Global Growth – Diverging Fortunes
Market Insights | Investment Solutions

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

12-months ago global growth reached a post-recession peak as we experienced synchronised global growth across many different countries.
Posted 25 January 2019

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.

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.

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.

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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

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