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.
- 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.”