Risks to the current bull market are increasing, and the global outlook is at its gloomiest in two years, according to economic forecasts from T. Rowe Price and IHS Markit.
Rowe Price, which has $1.08 trillion in assets under management, said concerns of a China tariff war and Fed tightening have been the catalysts for the most recent downturn. The firm also said it expects muted growth in the coming year.
“We expect global growth to slow a bit in 2019, but fiscal stimulus will still provide a tailwind,” T. Rowe Price Chief US Economist Alan Levenson said at a press briefing for its annual outlook report. “History suggests that we will see another 175 basis points of rate hikes, and Fed tightening cycles should lift the real Fed funds rate at least to potential real GDP growth.”
Levenson added that although the yield curve is flattening, “this does not mean recession is imminent.”
The report said that growth for advanced economies will be broadly slower as
“stimulus tailwinds abate,” and output gaps close, and that there was a “mixed picture” in emerging markets and developing economies, with a deceleration in growth in China being offset by acceleration elsewhere. It also said that things could turn out to be worse than expected as the risks to its growth outlook are “skewed to the downside.”
For the US equity markets, the report said that “there is reason for cautious optimism,” but that the markets will likely be “choppy” and headline-driven.
According to IHS Markit’s Global Business Outlook, which is based on responses from a panel of 12,000 companies, global business optimism has fallen to its lowest in two years in October, worsening in all major economies except for Brazil and Russia.
“Steep falls are seen in the eurozone, the UK, and China, the latter two seeing optimism sink to the gloomiest since the global financial crisis,” said the report.
China had the weakest future optimism of all countries surveyed, according to IHS Markit, which said that of all the countries for which composite data are available, sentiment regarding output was weakest in China, falling to its lowest since the height of the global financial crisis, while expected profits growth for the country also hit a survey low. Meanwhile, the US shows the “greatest resilience,” posting the highest business optimism of the major developed economies, while Brazilian companies are the most upbeat overall worldwide. The report also said that uncertainty over Brexit is a key factor driving UK business optimism to its lowest level since comparable data became available in 2009.
“The outlook surveys reveal that companies are expecting the unwelcome combination of slower output growth and higher inflation in the year ahead,” Chris Williamson, chief business economist at IHS Markit, said in a release. “The results add to suspicions that global economic growth will slow in 2019, and perhaps more than many are currently anticipating, albeit with marked variations among the largest economies.”