Western Asset makes the case for continued global resilience

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Western Asset, a Legg Mason affiliate, in it’s Q4 Global Outlook, breaks down the factors driving the global economy and makes the case for continued global resilience.

The Western Asset team notes: “Global growth prospects remain clouded by a number of interconnected risks: a sustained decline in global manufacturing activity due to ongoing global trade tensions, a more pronounced slowdown in Europe and China, the possibility of policy missteps by the Fed and ECB as they look to enact additional stimulus measures, and fear of an imminent hard-Brexit scenario due to political chaos and newer flashpoints in Hong Kong and Saudi Arabia, with ramifications that remain unknown at this time.

“While downside risks have risen this year, we believe global growth should prove to be resilient. We remain encouraged by the ongoing strength of the consumer globally and the enormous amount of monetary stimulus supplied by both developed (DM) and emerging market (EM) central banks—the combined weight of these two forces should truncate downside growth risks as we move closer to 2020.

“Here we provide a summary of the key drivers behind our global outlook:

  • We expect that global growth will prove to be resilient, even in the face of interconnected risks that include trade tensions, slowdowns in Europe and China, and a potential hard Brexit.
  • Our estimate for US growth in 2019 is between 2.0% and 2.25%. We’re encouraged by a recent rebound in consumer spending and a tentative improvement in manufacturing data.
  • We see nothing in Fed policy nor in the ongoing growth rates of nominal GDP that would suggest any inflation spikes over the near to mid-term.
  • For the eurozone, we recently downgraded our growth expectations to about 1.0% for 2019 given recent data prints.
  • On US-China trade tensions, we do not expect to see a quick permanent turnaround in the near term as neither country appears keen to concede ground.
  • In line with other DMs, growth has slowed in Australia and we now expect growth of 2.0%-2.5% in 2019.
  • While oil prices over the short term are expected to be in the $55 to $62 per barrel range given the recent drone strikes in Saudi Arabia, we expect an eventual return to our $50 to $55 per barrel range.

 

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