As we head into 2019, we see reasons to believe that these three key themes would shape global growth outcomes in 2019.
Theme #1 – Trade: As in 2018, jitters arising from trade tensions and tariffs would continue to be the elephant in the room. To put things into perspective, the IMF provided an extensive scenario analysis on the possible downgrade to expected global GDP growth in 2019. The scenarios show that as much as a 0.8% deviation from 2019’s base case and a 0.4% deviation from its long-term base case scenario could materialize – depending on the level of retaliation, the severity of dent on business confidence and the escalation in market reactions.
Theme #2 – Geopolitics: The intensity of geopolitical risks could have a ripple effect on global growth. This includes the spate of election and election-related events lined up for the year; including, the European parliamentary election, general elections in India, Indonesia, Nigeria, South Africa, and the onset of US presidential campaigns.
Theme #3 – Monetary Policy: Finally, there lies the potential synchronization of monetary policy normalization across Advanced Economies. As a ripple effect, EMs with large dollar-dominated debt and fragile macroeconomic conditions may have to withstand a high risk of further large and potentially incapacitating capital outflows.