22 Aug 2018
We have trimmed our forecast for global growth for the second time this year, largely driven by cuts to Europe and Japan as well as escalating trade wars.
- We have trimmed our activity forecast for the second time this year and now expect global growth of 3.3% this year and 3% next (previously 3.4% and 3.2% respectively).
- The change is driven by significant cuts to Europe and Japan and lesser reductions in the US and emerging markets for 2018. For next year, the reduction reflects a more pessimistic view of the trade wars with the dispute between the US and China expected to escalate as both sides defend their red lines.
- Eurozone growth failed to rebound in the second quarter as trade wars weighed on world trade, hurting the monetary union's external performance. Reform minded member states like Germany and Spain recorded a pick-up in growth, but France and Italy were a drag on the overall growth rate.
- As we believe trade wars are likely to intensify, we have downgraded the growth forecast for this year and next. Inflation has been revised higher due to energy prices and a weaker euro. The ECB is still expected to end QE in December and raise interest rates twice in 2019.
- UK growth has also been revised down, largely for the same reasons. Brexit uncertainty remains high, but negotiations are about to reach a crescendo. We explore the prospects for sterling in a no-deal or cliff-edge Brexit scenario versus entering a transition period.
- It is difficult for emerging markets to outperform when global growth takes a turn for the worse, and even more so when trade is under threat.
- The EM growth outlook receives a downgrade, even as inflation pressures start to build.
- A short summary of our main macro views and where we see the risks to the world economy.
The full document is available at www.schroders.com/en/uk/adviser/insights