Each day in December 2018, global traders and investors see massive volatility and shocking price swings in the US and other equity markets while China saw its stock market report the worst performance of any major economy on the planet – and throughout the month of December, reports from top institutions got worse. But more importantly, policy makers and economists started singing a different chorus, as they all started looking to 2019 and 2020 as a period of global growth deceleration.
Economists at the IMF or International Monetary Fund presented a forecast of 3.7 percent for global output this year, but the number will surely fall short.
The European Central Bank started talking about “downside risks” while the US banking firm, Goldman Sachs produced materials calling for an economic slowdown but not a recession. Then there were economists and analysts all producing studies about the US economy that were somewhat different but with the connecting tissue of slower growth. The OECD group of wealthy nations suddenly started talking about “easing momentum” across Europe and these collective voices triggered panic selling in the US stock market in December, the sell-off was fast and furious. More importantly, the economic releases in December started to add up to support these views.
Global economic powers such as Japan, Germany, Sweden, Italy and Switzerland all saw their third quarter economic releases move to contraction in 2018, sending a shock wave through global markets. To be clear, some of these economies will bounce back but as this was taking place, the global growth outlook dropped from 3.7 percent, to 3.5 percent and now some analysts are calling for 3.2 percent global GDP for 2019. At Classiarius, our fear is the US, China and Japan could all be falling into a recession in late 2019 or 2020 – the global economy would set a major setback.
While the US saw 3.0 percent growth in 2018, the economy is expected to slow to 2.0 percent in 2019 and by the end of 2019, sub-2.0 percent.
This fear seems to be taking root in the US as a recent survey by Duke University, a Top 10 university in the US located in North Carolina, indicated that 48.6 percent of US Chief Financial Officers believe that the US will fall into recession by the end of 2019, with 82 percent saying that by 2020, the US economy will fall firmly into recession.
One key standout in the long list of economic releases is the US unemployment rate which could fall to 3.2 percent in the coming quarter, then rise by the end of 2019 to 3.7 percent or higher. In short, the labor market still could stay somewhat firm. Finally, the Federal Reserve could change course as they have in the past. Instead of rate hikes in 2019, the Central Bank could slow the hike cycle or even pause hikes for an undetermined period of time, thus acceding to President Trump stop the hikes please.