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John Greenwood’s annual economic outlook 2019

What are the prospects for the global economy in 2019? With record low rates of unemployment in many major economies, will inflation take off this year?


US monetary policy is becoming less accommodative, but the US Federal Reserve (Fed) is not “tightening”, only “normalising” policy. The current “normalisation” phase is analogous to the mid-course corrections in interest rates that occurred in 1994-95 and 2004-05. The important point about those episodes was that the business cycle continued to expand for several years after the completion of normalisation, and the equity and real estate markets also peaked considerably after these rate hikes were completed.

In my opinion there is a strong probability that the Fed will be successful in positioning the US economy for several more years of expansion after 2019 or 2020 when the fed funds rate is expected to reach the “neutral” level – i.e. the rate that is neither expansionary nor contractionary, but consistent with steady-state expansion. This could mean that by next July the current expansion will exceed the longest recorded expansion in US financial history.

Over the past nine months real GDP growth in the Euro-area slowed. Given that fiscal policies in the Euro-area will remain restrictive, monetary policy will be the only source of macro-economic policy change. For the euro-area I expect 1.5% real GDP growth and 1.3% CPI inflation in 2019.

In the UK public debate has been dominated by the details of the negotiations for the UK’s withdrawal from the EU. Although on the surface consumer spending seems quite normal, there has been a slowdown of investment pending the emergence of a clear agreement on the post-Brexit trading environment. Almost irrespective of what happens in the Brexit saga, I believe that low growth rates of money and credit will put a ceiling on the possible upside of inflation if sterling should weaken sharply again. For 2019 as a whole I forecast 1.6% growth and 2.2% inflation.

China’s macroeconomic policymakers are faced with an acute dilemma. On the one hand they urgently need to reduce the leverage in the economy that has built up over the past decade as a result of successive episodes of credit expansion. On the other hand, like policymakers elsewhere, they are anxious to maintain growth by intermittent easing of monetary policy – for example by cutting reserve requirement ratios, relaxing macro-prudential controls on mortgage lending, and easing some money market interest rates.

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important Information

This document is marketing material and is not intended as a recommendation to invest in any asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

Where John Greenwood has expressed opinions, they are based on current market conditions, may differ from those of other investment professionals and are subject to change without notice.

January 2019

Please note that these are the views of John Greenwood, Chief Economist, of Invesco and should not be interpreted as the views of RL360.


John Greenwood

Chief Economist, Invesco

January 2019

Please note that these are the views of John Greenwood of Invesco and should not be interpreted as the views of RL360.

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