After two years of solid growth, a synchronized global slowdown is underway. The U.S. economy appears to have lost momentum, growth has been falling in the eurozone, China is struggling to sustain economic momentum and lingering Brexit-related uncertainty continues to take a toll on the British economy. This has raised concerns about the longevity of the current expansion.

Though growth rates may not match recent performances, we do not anticipate a recession anytime soon. The U.S. economy will downshift naturally as the impact of fiscal stimulus from tax reform wanes and monetary policy normalization continues. Even though we envisage a gradual decline in U.S.-China trade tensions, the Chinese economy should continue to moderate amid weaker external demand and internal rebalancing. European growth should recover from the recent soft patch as favorable domestic drivers are still in place. And we continue to expect a “soft” Brexit that broadly maintains strong commercial ties with the European Union.



The key downside risks to this outlook are an escalation or broadening of the U.S.-China trade war, a disorderly Brexit and another rise in populist sentiment.

United States
  • The federal government has reopened after a record-setting shutdown. We expect that leaders on both sides share a distaste for further standoffs and will find ways to agreements that keep the economy running smoothly. Reduced spending by furloughed workers and suspended contractors will weigh on first-quarter economic growth, but the impasse does not significantly impair our full-year outlook.
  • U.S. consumers and businesses alike have benefitted from lower energy prices, which have stabilized after a steady descent in the fourth quarter. This fall will contain the growth of headline inflation. The combination of below-target inflation and delayed data releases from the shutdown gives us confidence that the Federal Reserve will undertake no rate actions until mid-year. We expect one rate increase later in the year to conclude the rising cycle. Upcoming Federal Reserve meetings should give us greater clarity into the timing and terminal level of its balance sheet holdings.

Eurozone

  • Owing to both transitory and fundamental factors, growth in the eurozone continues to disappoint . Exports, which were a key contributor to growth over the past few quarters, will prove to be a drag amid a slowing global landscape, but domestic fundamentals will continue to underpin the economy. Consumption should remain strong in 2019 as unemployment continues to trend lower, inflation has moderated due to falling oil prices, wages should continue to rise and monetary policy will likely remain supportive. A less austere fiscal stance will also support growth.