The world in 2019 - the global economy in transition

Following a sharp recovery from the financial crisis, the global economy has been cruising steadily ahead since 2010. We’re now approaching the end of that cycle, however, as worldwide growth is anticipated to slow to 3.7% by 2020, according to the International Monetary Fund (IMF).

Importantly, most of that growth will come from emerging markets, which are forecast to expand by at least 4.5% over the next three years, according to the IMF. The outlook for advanced economies is far less rosy, falling from an estimated 2.4% in 2018 to just 1.7% in 2020.

Asia will stand apart over the next few years, with regional GDP growth expected to exceed 5% in both 2019 and 2020, led by India’s rapidly expanding $2.6 trillion economy, which is poised to expand by 7.4% this year. At the same time, Chinese growth is expected to decline to 6.2%, compared to 6.6% in 2018.

Meanwhile, the IMF expects 2019 US growth to slow to 2.5%, the eurozone to dip to 1.9% and Japan – with its ageing population and sclerotic economy – to fall to just 0.9%.

America at work
US unemployment rate

Source: IMF

Leaving the factory floor
Chinese service-sector employment (percentage of total employment)

Source: US Bureau of Economic Analysis

As unemployment levels reach multi-decade lows in many countries, wage inflation has slowly but steadily begun to take hold as employers are forced to offer improved financial packages to retain and attract staff. We therefore expect wage inflation to continue this year, particularly if the price of oil and other key commodities remains firm.

In Japan, a healthy dose of inflation would be very welcome news. While the country’s long battle with deflation has so far proved unsuccessful, an October 2019 consumption tax hike – from 8% to 10% – should help. It remains to be seen, however, how Prime Minister Shinzo Abe will restore confidence in an economy that has been hit by a series of natural disasters, lower consumption and falling capital investment.

A soft landing
Chinese real GDP growth (year-on-year change)

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