Brexit, trade tensions, global slowdown: The themes are familiar, but the stakes keep getting higher.

SUMMARY

  • The Abyss Stares Back

Instead of a calm end to summer, the past month has brought more downside risks for the global economy. The U.S. and China mutually raised tariffs, while evidence of a slowdown in the eurozone is accumulating. Brexit outcomes have become even more difficult to predict. Civil unrest in Hong Kong and a rebuilt governing coalition in Italy are the latest examples of imbalances seen around the world.

At this juncture, the best we can hope for is no further deterioration of economic conditions. The escalation of U.S. tariffs on goods from China will proceed as threatened this year, but tariffs are reaching their natural limit as a policy threat. Policymakers’ comments during and after the G7 and Jackson Hole conferences failed to offer new insights or reason to expect renewed growth in any region.

The ongoing uncertainties will continue to weigh on economic prospects for the remainder of the year and into 2020. Our outlook for the world’s major economies is cautious.

United States

  • While parts of the U.S. economy, including business investment, are sluggish, the hale and hearty U.S. consumer is encouraging. Backed by a solid labor market, the Conference Board Consumer Confidence Index reaffirms that consumers are willing to spend. The situation could reverse if more of the cost of U.S.-China trade actions is passed on to consumers. We expect growth to remain near 2% for 2019, but as protectionist measures expand, growth will likely fall below that level in 2020.