The global expansion we experienced in 2018 has become less synchronized, leading to varying growth rates in 2019 for different regions of the world. We forecast more modest global growth as a result, with GDP expanding 3.4% for the year.
Source: Ivy Investments. Chart shows Ivy 2018, 2019 forecasts of annual gross domestic product growth, all based on purchasing power parity. Past performance is not a guarantee of future results. The gross domestic product growth forecasts are current through December 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed.
Our global growth forecast is a somewhat more modest 3.4% in 2019, compared with our projected 3.7% in 2018. The change in part is because global growth at the start of 2018 has become less synchronized. We believe the growth rates for different regions of the world will vary, slowing the pace of global economic expansion.
Economic growth in the eurozone was much weaker than expected in 2018 on the back of a general slowdown in global trade and one-off shocks. While trade was a slight drag, poor winter weather early in the year and government mandates on automobiles caused disruptions that depressed performance. We anticipate a tepid growth rate in the eurozone of 1.5% in 2019 with two key geopolitical uncertainties to watch as the year unfolds.
After months of “Brexit” consternation, the United Kingdom
(U.K.) soon could have an agreement on its withdrawal from the
European Union (EU), which is scheduled for March 2019. Prime
Minister Theresa May has been on a political high-wire act, trying
to appease U.K. Parliament members who want a significant
break from the EU as well as those who favor a closer relationship.
May narrowly survived a “no confidence” vote among her fellow
Conservative party members in December 2018 and still has
the arduous task of maneuvering an equitable deal through
Parliament before the March deadline.
We believe that the Parliament ultimately will approve a Brexit deal, albeit with agreements that keep the U.K. and EU closely aligned on key issues, such as an alliance on trade and customs centered on the border between the Republic of Ireland and U.K.- controlled Northern Ireland. We anticipate this action could be a boost for U.K. business confidence and lead to improved economic growth in the second half of 2019.
Italy, which faces a significant budget deficit, raised eyebrows after its newly formed government produced a 2019 budget that does not comply with EU rules. The coalition government in Italy believes EU spending mandates have hampered the country, leading to a standoff between Rome and Brussels. Italy’s actions coupled with the Brexit drama have ignited fears of a possible eurozone breakup. We don’t see that happening, but expect this stalemate to continue through the European Parliament elections in May 2019. However, we also think market pressures could trigger a quicker resolution between Italy and the EU because of the subdued growth backdrop.
Italy’s actions, coupled with the Brexit drama, have ignited fears
of a possible eurozone breakup. We don’t see that happening,
but expect this stalemate to continue through the European
Parliament elections in May 2019. However, we also think market
pressures could trigger a quicker resolution between Italy and the
EU because of the subdued growth backdrop.
After an extended period of lackluster economic performance, we believe Japan is poised for better growth. We forecast a 1.2% rise in GDP growth for 2019. One wildcard for Japan’s economy is an expected increase in the consumption tax to 10% in October 2019 from the current 8%. Historically, tax hikes of this magnitude in Japan have caused meaningful declines in its GDP. Prime Minister Shinzō Abe has pledged to offset the tax hike with fiscal spending, which makes us believe the impact may be more manageable than in the past. We also believe the Bank of Japan will hold tight on its current interest rate position ahead of the implementation of that consumption tax increase.
2019 Outlook — What’s ahead amid slowing growth
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The opinions expressed are those of Ivy Investment Management Company and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through December 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.