The world economy is slowing and growth forecasts are revised down

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest forecasts from three major institutions:

  • The OECD’s and the European Commission’s latest forecasts were released in November, whilst the IMF’s latest forecast was released in October.
  • In all three cases, world economic growth is seen to be slowing, amidst trade tensions and tighter fiscal and monetary policy. The OECD, for example, sees world GDP growth slowing from 3.7% in 2017 and 2018 to 3.5% in 2019 and 2020.
  • Moreover, all three institutions have revised their growth forecasts down from their previous forecasts. In their previous forecasts, the general view was that global growth was picking up.
  • All three institutions agree that growth will slow in the Eurozone, the US and China over the forecast period.
  • They all project lacklustre growth for the UK. The OECD, for example, projects 1.3% for 2018, 1.4% in 2019 and 1.1% in 2020.

Another development:

  • Oil prices have fallen sharply since the beginning of October, when Brent Crude peaked at over $86pb, reflecting overproduction and the consequent build-up of inventories. Brent Crude was under $60pb at the end of November.

There were major developments on Brexit:

  • The Withdrawal Agreement (599 pages) and the Political Declaration on the future EU-UK relationship (26 pages) were agreed at an extraordinary European Summit on 25 November.
  • The Government released long-term analyses (to around 2035) of the economy for several scenarios on 28 November. Their White Paper model was the best performing scenario and their No Deal was the worst.
  • The Bank of England also released its scenario analysis on 28 November, concluding “the FPC judges that the UK banking system is strong enough to serve UK households and businesses even in a disorderly Brexit”.
  • The Bank’s “close Economic Partnership” scenario was the best performing scenario whilst the “disorderly No Deal” scenario was the worst.

Ruth Lea said, “The forecasting consensus has grown more pessimistic in recent months with forecasting institutions generally downgrading their growth projections. This partly reflects the uncertainties created by the US-China trade tensions. Growth is now expected to slow over the next 2-3 years. And, moreover, it is expected to slow in the three largest economies: the Eurozone, the US and China.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674
Email: ruthlea@arbuthnot.co.uk

Would you like to receive Arbuthnot Latham’s fortnightly Economic Perspectives from Ruth Lea CBE directly to your email inbox? Click the button to subscribe to our email newsletters.