Update Magazine III/2019 |
Macroeconomic base scenario
1/ Economic trend
There is still a loss of economic momentum. Regional and sectoral differentiation continues with Europe and the manufacturing sector – representing the cyclical part of the global economy – on the weak side. Ongoing labour market tightening will entail a further narrowing of the global output gap. Large swings in the terms of trade due to the rise and fall of commodity prices. Biggest risks: global trade war, a hard Brexit and rising tensions in the Near East.
2/ Price development
Base effects of the ups and downs of raw material prices are determining CPI time profile in 2019 – and in 2020. Subdued price pressure in the EZ and Japan while US core rate is ticking up.
3/ Monetary policy
The Fed has shifted to an easing course due to recession fears – further cuts of the Fed funds rate in 2019. This helps EM central banks to focus on domestic issues. ECB with easier monetary policy: lower deposit rate + extended forward guidance + net asset purchase programme. The BoJ remains expansionary due to calm price climate, while BoE actions depend on the Brexit path. China’s PBoC continues to support national economic policy.
4/ Fiscal policy
Expansionary effects of US fiscal policy are coming to an end. French budget deficit above 3% in 2019. Truce between Rome and Brussels about budget deficit, but no final solution. What is the intention of the new government? Will Germany increase fiscal deficit?
World map of political risks
Source: AllianzGI Economics and Strategy. Data as of November 2019
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Summary
Tobias Pross, CEO and Deborah Zurkow, Global Head of Investments at Allianz Global Investors