SUMMARY

  • In Choppy Waters

The synchronized slowdown witnessed around the globe in the first half of 2019 has taken hold, with no easy way back up in sight. Concerns are on the rise about the near-term growth prospects in Europe (particularly Germany) and Japan, but we do not expect these regions to slip into recession. With Prime Minister Boris Johnson now at the helm, the odds of a disorderly Brexit are rising -- yet it is still not imminent.

The resumption of U.S.-China trade talks was an encouraging development, but negotiators stumbled out of the gate. In our base case, we expect all current tariffs to remain in place at least through early 2020, sustaining downward pressure on global trade. Plus, new trade tensions flaring up between Japan and South Korea are only clouding the already bleak outlook. Against this backdrop, the major central banks have shown willingness to deploy their depleted monetary tools to fight risks of recession.

The ongoing uncertainties will continue to weigh on economic prospects for the remainder of the year and into 2020. Following are our outlooks for the major countries and regions:

United States

  • Economic headlines in the U.S. have returned to a positive tone. The unemployment rate rose to 3.7% as more workers entered the labor force, while inflation rates have tempered their long decline. The trade truce with China has helped to settle markets, while the deal to lift the debt ceiling removes an important fiscal risk. Annualized gross domestic product (GDP) growth of 2.1% in the second quarter, driven by strong consumer spending, exceeded our expectations. While the decline in business investment is discouraging, the economy continues to show resilience.
  • After thoroughly signaling an easier posture, the Federal Reserve has begun cutting rates. Following this week’s action, we expect one additional insurance cut of 25 bps this year, and for rates to hold steady thereafter. Favorable domestic conditions call this second cut into question, but the Fed has affirmed its intent to support the economy against headwinds from trade tensions and slow global growth.