Macroeconomic outlook

We expect global economic growth to remain solid next year, but slow and with downside risks prevailing.

The path towards gradual monetary policy normalisation will continue. The recent increase in yields will benefit re/insurers in the form of higher investment returns, but with a lag. The major downside risk for the economy is the prospect of escalation of current US-China tensions into a global trade war scenario.

Key takeaways

  • Global economic growth will remain strong but slow by 1 to 2 percentage points over the next two years.
  • Inflation has been boosted by the recent increase in the price of oil. Underlying inflationary pressures have been more moderate, but are increasing amid above-trend growth.
  • We expect central banks will continue to normalise monetary policies at a gradual pace. We expect the Federal Reserve to raise interest rates twice in 2019, after a total of four hikes in 2018.
  • Aggregate emerging market growth is forecast to accelerate to 4.9% annually over the next two years, from 4.7% in 2018.

Real GDP growth, inflation and interest rates in select regions 2017 to 2020

Downside risks to global growth have increased

  • Medium term, the main risks are overheating in the US, and stagflation and destabilisation in the Euro area.
  • For the longer term, the main concern is development of a global trade war scenario.

Global economic risk map

Protectionism on the rise

Our baseline scenario is escalation of current US/China trade tensions to imposition of a 25% tariff on all goods trade between the two countries.

Protectionist measures (top), economic impact (middle) and likelihood (bottom) in our baseline and alternative scenarios

Read the full sigma 5/2018 story.