Economic Growth: These Are the Good Old Days

The US and the world’s economies should be fine in 2018, then start to slow, IHS Markit predicts.

It’s all thumbs up for the global economy, for this year anyway. That’s the assessment of IHS Markit, a forecast that pretty much tracks the conventional wisdom nowadays.

World gross domestic products should “hold steady” at 3.3% in 2018, then gradually slide to 3.2% next year and 3.0% in 2020, according to the firm’s chief economist, Nariman Behravesh, and its executive director for global economics, Sara Johnson.

But here comes the all-important caveat: “The steadiness in growth belies the possible impact of gathering storm clouds,” they wrote in their June forecast. That would be the chance of a trade war, higher oil prices eroding growth, political risks in Europe (read: Italy and Spain), and shaky emerging market nations, like Argentina and Turkey.

In the US, IHS thinks that the so-so 2.1% annual growth in this year’s first quarter will improve to 4.1% in the second quarter ending June 30. And for all of 2018, the GDP expansion should come in at 3.0%, the firm believes. And then … downhill, albeit gently: 2.8% for 2019 and 1.9% for 2020.

China, the world’s second-largest economy, should have its own gradual slowdown, the report indicated. The first of the culprits here is monetary tightening, which the Chinese central bank is engineering to keep pace with the Federal Reserve’s interest rate hikes (so that the yuan’s worth isn’t harmed). The second: US protectionist trade policies.

Nevertheless, China’s growth, which was 6.9% last year, still will outpace that of the US. The forecast for the Chinese economy is 6.7% this year, 6.4% in 2019, and 6.1% in 2020.

For the US, headwinds include higher oil prices and a stronger dollar—and with even more impact, higher interest rates and the fading of effect of the tax cuts and federal spending boosts.  The “fading stimulus in the world’s largest economy will leads to a global slowdown,” the IHS report contended.

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