2018 Midyear Global Outlook:
Global economy hums along

06.28.18

Despite the threat of trade disputes, the global economy remains resilient. We believe the U.S. is a key driver of the overall health of continued global economic expansion. We have revised our global economic forecast, projecting growth at 3.8% for the year, down slightly from our outlook in January. (Chart 3)

IVY VIEW
We project global GDP growth at 3.8% in 2018.

Eurozone GDP performance has been tepid and weaker than expected this year, with growth at a 0.4% non-annualized rate. We believe a markedly harsh winter in areas of Europe and an uptick in work absences due to seasonal illness contributed to the less than stellar performance. We think the first-quarter slowdown was exaggerated and expect a slight rebound in growth going forward. A similar phenomenon happened in the U.K., where we also expect growth to rebound, although increasing friction in Brexit negotiations about the U.K.’s exit from the European Union (EU) has created downside risks.

Chart 3: Ivy projects 2018 Global GDP growth may pick up after slow start to the year

Chart Showing Ivy projects 2018 Global GDP growth may pick up after slow start to the year

Source: Chart shows actual and forecast annual gross domestic product growth. Source 2017, International Monetary Fund actual data; 2018 Ivy forecasts; all based on purchasing power parity. Past performance is not a guarantee of future results. The forecasts are current through June 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed.

The European Central Bank (ECB) announced its plans to halt its quantitative easing program later this year while keeping interest rates at record lows at least until summer 2019. The ECB’s announcement was a noteworthy change from its prior position because it marked the bank’s first move to unconditional calendar-based guidance on its plans and away from its prior approach of issuing guidance based on the state of economic conditions. However, the ECB could delay any changes to its program and prolong its current monetary policy if recent economic weakness continues.

Japan’s lackluster economic performance in the first quarter caused us to lower our growth projection to 1.2% for the year. However, we believe growth could pick up in the second half of 2018 based on our expectations for solid employment growth, fiscal stimulus, an influx of construction projects in anticipation of the 2020 Summer Olympics and an increasing desire for companies to make investments in capital expenditures. Given soft inflation data, we expect the Bank of Japan to continue trailing other central banks in tightening its ultra-accommodative policies.

Emerging market economies are holding up well as global interest rates remain at relatively low levels versus historic norms.

We have amended our forecast growth rate to 7.3% for India, making it the fastestgrowing country among major emerging economies. Our views on China, however, have become slightly more measured. Government efforts to curb pollution resulted in multiple closures of heavy industrial plants, which weighed on growth in the first quarter. In addition, government action to temporarily pause and inspect public-private partnership initiatives has finished. We believe China is poised for a GDP growth rate of 6.4% in 2018. Lingering trade tensions with the U.S. still are cause for concern for China, as well as for other global powers.

2018 Midyear Global Outlook - Continue Reading
Section 1 — U.S. economy sets the pace
Section 2 — Global economy hums along
Section 3 — U.S. dollar rally looks more durable
Section 4 — What are the risks?
Section 5 — Key sectors to watch


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The opinions expressed are those of Ivy Investment Management Company, are current through June 2018 and are subject to change at any time based on market and other current conditions. No forecasts can be guaranteed. This information is not a recommendation to purchase, sell or hold any specific fund or security mentioned or to engage in any investment strategy. Funds or securities discussed may not be suitable for all investors.