Global Markets Outlook for 2019 through the Eye of Analysts from Cytonn Investments

2018 was characterized by a moderate decline in global economic growth, which was weighed down by the negative effects of the trade conflicts between the US, China, and Eurozone, as well as weaker growth in key emerging markets such as China and Brazil.

According to the World Bank, global GDP growth in 2019 is expected to come in at 2.9 percent, a decline from the 3.0 percent recorded in 2018, as a result of softened international trade and investments, trade tensions and substantial financial markets pressure in emerging markets and developing economies.

Following the flat economic growth in 2018, analysts say three key themes will shape the global markets in 2019:

Monetary Policy Tightening

Monetary policy stances are expected to tighten in advanced economies. The US Federal Open Market Committee (FOMC) is expected to continue on the path towards interest rate normalization through the tightening of monetary policy, with the expectation of two further rate hikes in 2019.

The European Central Bank (ECB) is expected to maintain its benchmark interest rates through the first half of 2019, has announced that it would stop its asset-bond buying program in December 2018. This stance to gradually remove accommodative policies by Central Banks highlights the stronger growth in their specific regions.

However, a benign inflationary environment and the increased possibility of a recession in Germany and the US in 2019 are key downside risks to further tightening monetary policy.

Global Trade to Slow Down

Escalating trade tensions between major trade partners and the potential shift away from a multilateral, rule-based trading system are key threats to the global economy in 2019.

The US has been imposing tariffs on a variety of imports with major trade partners, including on USD 200.0 billion worth of imports from China, and trading partners undertaking or promising retaliatory and other protective measures.

An intensification of trade tensions and the associated rise in policy uncertainty could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade.

Higher trade barriers would also disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity. More import restrictions would also make tradable consumer goods less affordable.

Falling Commodity Prices

Global commodities registered declines in 2018, with agriculture, non-energy commodities, Brent Crude, and metals & minerals registering declines of 3.0, 3.7, 5.5, and 7.9 percent respectively.

The energy gained by 4.9 percent, according to the World Bank Commodity Prices Index. Oil prices closed 2018 at USD 53.8 per barrel, having averaged USD 68.0 per barrel during 2018.

According to the World Bank, oil prices are forecasted to decline marginally to an average of USD 67.0 per barrel in 2019. This is owing to an expected decline in demand following the slowdown in the global economy, an oversupply of oil in the market, and an expected rise in shale oil output from the US.

However, efforts by the OPEC organization, namely capping of oil output in the first half of 2019, should help rebalance the market in terms of supply and demand.

Having considered the three key factors that will drive Global Markets in 2019, we now look at specific economic regions and expectations for their GDP performance in 2019: