World Economic Prospects Monthly

Abstract

Overview: Trade tensions worsen near-term prospects ▀ The direct effect of the US decision to open a new front in its trade wars will be small, but it raises the risk of more substantive measures further down the line. Combined with the sombre tone of recent economic data, this has led us to become slightly more pessimistic about the near‐term outlook. ▀ Despite the generally negative narrative, at a global level our quarterly GDP growth estimate for Q1 has been revised up again and, at 0.7%, is now almost 0.2pp higher than we assumed a couple of months ago. ▀ But we do not expect this strength to have extended into Q2. Indicators of global trade continue to paint a downbeat picture – our world trade indicator has fallen to its lowest since mid‐2009. Meanwhile, the global composite PMI edged closer to its 2016 trough, reflecting a weakening in both manufacturing and services. ▀ Equally important, the likely damage to world growth from trade tensions has worsened over the past month or so. True, the new US‐China tariff measures, the restrictions on Huawei and the recent threat to impose tariffs on Mexico if immigration flows to the US are not curtailed will have a modest, rather than significant, impact on global growth. But these developments may dash hopes that some kind of détente had been reached. Even if this turns out to be the high‐water mark for tariffs, the latest measures have added to downside risks and are likely to curtail investment. ▀ In response, we have cut our end‐2019 forecast for Brent crude from $73pb to $67pb and expect more dovish central bank behaviour, with the US cutting rates by 25bp in Q4. But we see US dollar strength lasting longer due to the more uncertain outlook, which at a global level may offset the benefits of lower oil prices and interest rates. ▀ Overall, for 2019 we have lowered our global GDP growth forecast by 0.1pp from a month ago to 2.7%. We see 2020 growth remaining at 2.7%, down slightly from last month and still well below the 3.2% gains of 2017 and 2018.