Economists at London-based Capital Economics think the economy is headed for the slowest growth since the financial crisis.
They are particularly negative on the eurozone over political concerns that have hit business and consumer sentiment. They are also disappointed by industrial production.
“This suggests that an acceleration in domestic spending is no longer likely to offset the effect of slowing exports and we now see euro-zone GDP rising by one per cent this year and 0.8 per cent next, down from 1.8 per cent and 1.5 per cent previously,” says Jennifer McKeown, head of global economics service at Capital Markets, in a research note.
Capital Economics thinks the U.S. economy is in good shape, but higher interest rates are already starting to become an economic monkey wrench. It also thinks the chances of a near-term Brexit deal are dwindling.
“These views imply that advanced-economy GDP growth will decelerate from 2.2 per cent last year to about one per cent in 2020,” says McKeown.
Central bankers’ hands are tied
China flashed a sign of a slowing economy with weaker than expected export data today. Capital Economics expects growth to edge lower to 4.5 per cent. Some other emerging market economies, like India, are expected to pick up the slack.
All of this leads to a global growth forecast of 2.8 per cent in 2020. Combined with subdued inflation, Capital Economics thinks interest rates will start falling in major economies like Japan, the U.S., and the eurozone. Capital Economics is calling for a rate cut by the Bank of Canada in 2019.
Falling interest rates mean Capital Economics also expects bonds to outperform stocks this year.