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