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Global GDP growth to ease in 2019, dragged by emerging markets & China: Oxford Economics

Michelle Zhu

18/10/18, 05:44 pm

SINGAPORE (Oct 18): Oxford Economics is anticipating a slowdown in global economic growth from this year’s 3.1% to 2.8% in 2019, a forecast that comes in slightly below consensus to reflect its pessimistic views on emerging markets (EM) and in particular, China.

The research firm continues to see a moderate, slightly sharper slowdown in global GDP growth for 2019 on the back of negative effects associated with higher US bond yields and a stronger USD.

In view of the continued US expansion and a scaling-back of the likely adverse impact of US protectionism on the global economy, Oxford has upgraded its near-term growth assessment, in turn leading to upward revisions for forecasted 2019 US GDP growth by 0.2 percentage points to 2.5%.

In a report on Thursday, Ben May, global economist at Oxford Economics, says the latest world GDP figures suggest some loss of momentum in 3Q18.

With the global composite purchasing managers index (PMI) falling to a near-two year low in Sept 2018, May views this as evidence that the slowdown in global trade growth has further room to run.

However, he emphasis that the fall is “not alarming as it seems” as it reflects the fact that global composite PMI figures has been very range-bound in 2017 and 2018, with the current reading nonetheless still consistent with “fairly healthy GDP growth”.

On the EM front, the research firm has downgraded its GDP forecasts on expectations of growth easing from 4.4% in 2018 to 4.2% in 2019 – down 0.2 percentage points from its forecast a month ago, and almost 0.5 percentage points below Oxford’s peak forecast earlier this year.

Growth risks are also skewed towards the downside, May adds.

Oxford’s assessment of EM economic fundamentals is considerably more downbeat than the consensus on some economies such as Germany and Italy. This is particularly so for the firm’s forecasts for China, where it expects GDP growth to slow to 6% compared to the consensus view of 6.3%.

“One positive is that China has loosened its monetary policy, in part to counterbalance the effects of higher US tariffs. But our baseline view is that this policy easing is not the start of an aggressive easing,” explains May.

“While Chinese policymakers have a ‘bottom line’ on growth of perhaps around 6% next year, they are keen to not “overdo” stimulus and to preserve the achievements of the campaign to rein in credit growth and financial risks. Thus, significantly more positive stimulus is only likely if the domestic economy takes a notable turn for the worse.”

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