My Top 10 Calls For 2019 And Beyond

1 - US to slow sharply and prompt the Fed to cut interest rates in early 2020. While the US economy has continued to expand at a rapid pace this year, I expect it to lose momentum over the course of next year. The boost from the fiscal stimulus will fade and tighter monetary policy is already causing a slowdown in rate-sensitive sectors, including property. Moreover, I suspect that core inflation is now past its peak and will decline gradually next year.

2 - Policy stimulus will not prevent a further slowdown in China. The Chinese economy is also likely to continue to lose steam in the coming months as its property market cools and the lagged effects of past policy tightening take effect. By the middle of 2019, however, I expect growth to have stabilised because of the combination of fiscal and monetary policy stimulus which is now being implemented.

3 - Euro-zone growth will slow amidst worries about Italy. The outlook for the euro-zone has deteriorated in recent months as business and consumer sentiment has softened and GDP growth has slowed. Italy’s economy will flirt with recession next year, raising fresh doubts about the sustainability of its public debt. And following its recent U-turn, the French government will fail to implement more structural reforms.

4 - UK will avoid a no-deal Brexit but uncertainty to persist. Negotiations over the UK’s withdrawal from the EU are likely to go down to the wire but I think a disorderly “no deal” will be avoided. This should pave the way for a modest rebound in economic growth, as well as a recovery in sterling as investors anticipate tighter monetary policy. But with a full agreement on the future relationship between the UK and EU still a long way off, uncertainty will continue to dampen business sentiment.

5 - No crisis in the emerging world, but growth will slow there too. With some notable exceptions, including Mexico and Russia, I think GDP growth will come in below consensus in emerging economies next year. But I don’t expect a repeat of the EM crisis fears that rattled markets this year.

6 - Fallout from trade war will be limited. Although this will have a negative effect on some sectors and markets, the consequences for global economic growth should be modest.

7 - Bank of Japan will defy expectations of policy tightening. Despite repeated suggestions that it is about to change tack, I think the Bank of Japan will soldier on with its ultra-loose policy for at least the next two years. The sales tax hike, which is likely to be implemented in October, should dampen household spending next year.

8 - US dollar will weaken as Fed rate cuts come into view

9 - Prices of risky assets will decline. I expect the recent fall in global equity markets to continue next year. The S&P 500 is down by around 8% from its peak in September and I think it will decline by a similar amount next year, as the US economy slows. Equity markets elsewhere are likely to fall in sympathy.

10 - Oil prices will fall as global demand slows. The price of Brent crude is likely to fall further in 2019, following its sharp drop in the last few months of this year. The recent decision by OPEC and its allies to cut production by 1.2 million barrels per day should be enough to bring the oil market into balance. But with the growth of global oil demand set to slow in the coming years the market will probably be in surplus again before long.