Slowdown in global growth 'healthy and necessary' - S&P
A slowdown in world growth next year should be welcomed as both “necessary and healthy”, argues S&P Global Ratings in its latest economic report.
In 'Global Economic Outlook 2019: Autumn is Coming', the ratings agency has predicted that the rate of expansion for the global economy will be 3.6% in 2019, down from 2018’s six-year high of 3.8%.
However, S&P said that the slowing was “both necessary and healthy”.
“Despite the gloom, we are not jumping on the crisis bandwagon,” the report said. “In board terms, we see the slowing of global growth as both necessary and healthy. We expect the process to be reasonably orderly, with recent bouts of market turbulence a reminder that slowdowns are not always smooth.
“It need not be the case that winter is coming, but the global synchronised upturn of 2017 has clearly passed and we are entering the autumn of the long expansion that following the global financial crisis.”
The American economy has enjoyed a bumper 2018, fuelled in the main by tax cuts. But Paul Gruenwald, chief economist at S&P Global Ratings and author of the report, said: “Most of the action will come from the US. The driver will be the waning fiscal stimulus from personal and corporate tax cuts, as well as the continuation of the gradual rate normalisation by the Federal Reserve.”
The other widely perceived threat to the global economy is China. It has boomed in recent years, fuelling global demand as both government and consumer spending soared.
Its growth rate has now started to stall, but S&P said: “The authorities have taken a number of policy-easing measures, including lowering the reserve requirement for smaller banks and enacting fiscal stimulus in the form of ramped-up infrastructure spending.
“This mild stimulus will cushion the slowdown, resulting in a continued steady decline in reported growth and a lowering of the official target from around 6.5% this year.”
As for the increasingly bitter US-China trade war, S&P insisted it could be resolved “as long as the main actors change their mindset”. That would mean the US shifting away from tariffs and for China to recognise that its current economic model created frictions.
In Europe, Gruenwald said that Brexit and Italy’s ongoing fiscal issues may have an impact but they remained “regional risks for the most part”.