Global growth to soft land, amid trade tensions and monetary stimulus – BBVA


The Research Department at BBVA, points out that GDP growth recovered in 1Q19 in three major areas but slowed in most other countries while signs of an ongoing moderation remain. 

Key Quotes: 

“Global growth continues in a smooth downward path (BBVA-GAIN: steady 0.8% QoQ in 2Q19), led by the weakness of the industrial sector and exports in a context high uncertainty on trade tensions. Domestic demand remains broadly resilient across regions, but is growing at a more moderate pace, with increasing concerns of negative spillover effects from the manufacturing sector.”

“With persistent uncertainty and low inflation, major central banks (Fed and ECB) have reassessed their monetary policy stance and consider new stimulus measures. We revise downward World GDP growth forecasts by 0.1pp to 3.3% in both 2019 and 2020. The impact of trade tensions is already apparent, and could be sizeable in the long term.”

“US activity should gradually lose momentum towards its potential growth rate supported by a more dovish Fed (easing cycle of up to 75bp cut). We maintain our GDP growth forecasts at 2.5% in 2019 and 2% in 2020. In the Eurozone, growth has trended down to a more moderate rate driven by the weakness of the industrial sector and increasing uncertainty (trade issues and Brexit) but we maintain broadly unchanged our growth forecasts (+0.1pp to 1.1% in 2019 and -0.1pp to 1.2% in 2020).”

“Risks remain strongly on the downside, linked to protectionism (but also to US recession, China’s leveraged exacerbated by new stimulus, Brexit), and could be magnified by financial vulnerabilities.”

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