• Global economy to continue slowing in 2019, risks are skewed to the downside
• US: Economy to slow in 2019
• Eurozone growth shifting down a gear, whilst UK outlook threatened by Brexit disruptions
• Japan economy should remain on firm footing
• China growth on path of gradual moderation
• ASEAN: Moderate impact on economic growth
• Malaysia: Modest pace of growth in 2019

Summary

Global economic growth remains strong but has passed its recent peak and faces escalating risks including rising trade tensions and tightening financial conditions.

In many countries, unemployment is at record lows and labour shortages are beginning to emerge. But rising risks could undermine the projected soft landing from the slowdown. Trade growth and investment have been slackening on the back of tariff hikes. Additionally, higher interest rates and an appreciating USD have resulted in an outflow of capital from emerging economies and are weakening their currencies.

Global economic growth is set to decelerate next year across many developed economies, Eastern Europe and Asia. Global GDP is now expected to expand by 3.5% in 2019, compared with the 3.8% growth in 2018, broadly in line with underlying global potential output growth. In the near term, policy support and strong job growth continue to underpin domestic demand. However, macroeconomic policies are projected to become less accommodative over time, and headwinds from trade tensions, tighter financial conditions and higher oil prices are set to continue.

Growth in the US will slow following the stimulus-induced expansion in 2018, while dynamics in China—while remaining robust—will likely dip somewhat, which will weigh on the performance of Asia’s other economies. In Europe, political risks remain elevated. Overall, the shakier outlook in 2019 reflects deteriorating prospects, principally in emerging markets and is more a reflection of developments in advanced economies as slower trade and lower fiscal and monetary support take their toll.

Closer to home, we forecast Malaysia to grow at a modest pace of +4.8% yoy (2018e: +4.8% yoy) as private spending moderates amid continued repriotisation of public expenditure. While commodity sectors are anticipated to rebound in 2019, there remains downside risk should there be prolonged production constraints. We anticipate inflation to trend higher in 2019 due to policy measures and base effect. Despite higher inflation, we expect BNM to maintain the OPR at 3.25% due to slower GDP and volatile capital flows.

Source: BIMB Securities Research - 21 Dec 2018