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11 Jan 2019 – Insights

10 questions about the global economy in 2019

Jakob Ekholdt Christensen, Head of International Macro & Emerging Markets in Danske Bank and his team deliever the answers in a recently published research paper. Below you can also find the short answers to the questions.

  • Further moderation of global growthis expected, especially in Q1—but too early to talk about recession in 2019 in our view —that is more a story for 2020. However, risks are tilted to the downside.

  • A trade deal between China and US to be found in H1 19, boosting China’s economy and the global cycle.

  • Wage pressures are continuing to build gradually in the Eurozone, lifting core inflation towards end-2019.

  • ECB will make its first rate hike in eight years in December, while the Fed will slow its rate hiking cycle to two hikes.

  • The oil price is expected to rebound toward USD80 per barrel over 2019 as risk sentiment recovers.

The main question

2018 was a historical year for equities where strong earnings did not result in good performance. Equities fell even though global earnings rose 15%. This size of divergence between earnings and performance is very rare and only happens when investors fear recession is looming. Therefor recession or not in 2019 is the main question for equity investors.

Bjarne Breinholt

Senior Equity Strategist, International Macro & Emerging Markets, Danske Bank

  • With the expected trade deal between the US and China and Chinese stimulus, emerging market sentiment is set to recover after Q1 19.

  • Difficult to predict how Brexit ends, but ‘decent’ Brexit still our base-case.

  • Oversold equities set for rebound, even without strong pick-up in global growth.

  • Overvalued USD will lose momentum in 2019 bringing USD/EUR to 1.25 at the end of this year as the ECB starts signalling a hike.

  • Bund yields will only rise modestly in 2019given moderation in global growth and modest increase in inflation pressures.