Global economic growth is expected to slow down in 2019, according to UBS, as tighter monetary policy, weaker earnings growth and political challenges confront the world’s major economies.
After seeing a growth of 3.8% in 2018, UBS said in its outlook for the year ahead that it expected global economic growth to slow to 3.6% in 2019.
«The decline in global growth will mean a weaker tailwind for global markets, which could begin to anticipate an end of the economic cycle as 2019 progresses,» the investment bank said in a note.
In the meantime, solid domestic demand in the euro zone will not be sufficient to offset reduced export growth, UBS’s economists said.
On the bright side, UBS said a recession looks unlikely given current rates of consumption, investment and employment growth «and we think the typical causes of a downturn are unlikely to materialize in 2019.»
«Our base case is for inflation to stay contained, allowing central bankers to remain sensitive to growth. We don’t foresee a major fiscal policy shift or a commodity price shock. Consumer balance sheets are in solid shape and improvements in banking sector capitalization since the financial crisis reduce the risk of a global credit crunch.»
It also noted that there are growth opportunities and pockets of value.
Tighter monetary policy
Among the biggest challenges facing the world’s largest economies is a new era of tighter monetary policy following a decade of stimulus after the financial crisis of 2008.
Central banks in the U.S., U.K., euro zone, Japan and elsewhere introduced a mixture of low interest rates and expansionary monetary stimulus programs, known as “quantitative easing” (QE) — essentially large-scale asset purchases — in a bid to boost spending in the economy.
While these tools were useful in re-establishing stability in global financial systems, central banks are keen to “normalize” such policies.
The U.S. has already stopped its QE program and hiked interest rates four times in 2018 while the European Central Bank confirmed in December that QE would end at the end of the month, with bond purchases falling from €15 bn ($17 bn) a month to zero. Amid ongoing Brexit uncertainty, meanwhile, the Bank of England has yet to say when its own QE program will end, although interest rates have been raised slightly.
UBS noted that the coming year will represent the first time since the global financial crisis when central bank balance sheets are on track to end the year smaller than they were at the start of it.
Original story: CNBC | Holly Ellyatt
Photo: Freeimages.com/Sergey Klimkin
Edition: Prime Yield