Weaker global economy – forecasts downgraded

Virtually no risk factor from the old year has lost any of its gravity with the start of the new year. Compounding this is the escalation in the domestic political situation in the USA in the form of the shutdown which has resulted in the week-long closure of some federal authorities. Provisional data publications also show that industry in the euro zone continued burdening the economy in the fourth quarter. We have therefore revised down our growth forecast for Germany, France and the euro zone as a whole for this year. For the US economy, the outlook for the year 2020 has also deteriorated.

Throughout Europe, problems in the automotive industry have left their mark on the industrial sector. With the pace slowing down once again in the final quarter of 2018, we have lowered our growth forecast for the euro zone for this year to 1.2 percent. For quite different reasons, the outlook for Germany, France and Italy in particular has deteriorated. While the German and French economies can still be expected to chalk up growth of around one percent in 2019, we expect only weak growth of half a percent in Italy, the third-largest country in the euro zone.

President Trump has shifted into campaign mode more quickly and more drastically than we had expected. To fulfil his promise of building a wall on the border with Mexico, he seems happy to use any means. With the entrenched political fronts likely to unsettle consumers and entrepreneurs alike, we forecast economic growth of only 2.5 percent this year following a strong almost three percent growth last year. We have also lowered our forecast for 2020 as we no longer expect that the temporary tax cuts will be extended. For this would require a political consensus between the two party blocs and the President, and we see little chance of this happening at the moment.

In China, on the other hand, the government will do everything in its power to achieve the official growth target. Beijing is countering an economic deceleration by means of spending programmes and tax cuts. Moreover, we do not expect the trade conflict with the USA to escalate any further. All things considered, the global economy as a whole will probably only raise its output by 3.5 percent this year compared with growth of 3.6 percent in the previous year.

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