Increasing concerns about global economic growth, especially in the Eurozone 

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the IMF’s January forecast along with the ECB’s latest concerns over Eurozone growth:

  • The IMF projected global growth of 3.7% (unchanged from October 2018’s forecast) for 2018, but revised growth down to 3.5% (from 3.7%) for 2019. They added that “risks to global growth tilt to the downside”.
  • They left their US forecasts unchanged, with growth of 2.9% (2018), 2.5% (2019) and 1.8% (2020).
  • But they revised Eurozone growth down again, to 1.8% in 2018 (compared with 2.0% in October and 2.2% in July), and to 1.6% in 2019 (down from 1.9%).
  • Germany’s downgrade was especially marked for both 2018 (now 1.5%), where growth momentum was lost in the second half of the year, and 2019 (now 1.3%). The growth rates for France and Italy were also downgraded, with Italy’s projected growth very lacklustre.
  • The IMF left the UK’s forecasts unchanged (1.4% for 2018, 1.5% for 2019 and 1.6% for 2020), assuming a “deal” on Brexit. They cited a No Deal Brexit as a potential risk to global growth.
  • China’s growth was projected to slow from 6.6% in 2018 to 6.2% in 2019 and 2020, with risks that it may slow more than expected.
  • Turning to the ECB, President Mario Draghi gave a downbeat assessment of the Eurozone’s economy after January’s Governing Council meeting. Indicators had been weaker than expected and “the risks surrounding the euro area growth outlook have moved to the downside”.
  • Eurostat data on November’s industrial production were very weak for the Eurozone’s “big 4”, especially for Germany.

UK developments have included:

  • December’s retail sales fell 0.9% (MOM), after November’s jump. For 2018Q4 sales were down 0.2% (QOQ), which will act as a drag on GDP in the quarter.
  • December’s consumer prices inflation and producer prices inflation moderated, as petrol and oil prices eased.
  • The housing market remains subdued with UK prices rising just 2.8% (YOY) in November, with London’s house prices falling by 0.7% (YOY).
  • The labour market remains robust, with the unemployment rate at 4.0% in the three months to November. The growth in annual average earnings is picking up, reflecting the tighter labour market.

Brexit developments included:

  • The Government lost the “meaningful vote” on the Withdrawal Agreement in the Commons on 15 January 2019, by 432 to 202 votes.
  • There will be another vote on the Withdrawal Agreement on 29 January.

Ruth Lea said, “Both the IMF and the ECB appear to be increasingly concerned about growth prospects in the Eurozone. The “big 3” major economies performed disappointingly last year and Germany and Italy are expected to slow further this year. The ECB’s interest rates are rock-bottom and can be expected to remain so. The ECB may even resort to more QE, if the economies continue to deteriorate. The stability and growth pact limits any fiscal stimulation packages, especially in the case of France and Italy. Germany, however, is in a comfortable fiscal position and could provide fiscal stimulus if it chose to do so.”

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.

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