According to analysts from Wells Fargo, the structural trend toward more monetary policy tightening in the advanced world appears to be putting pressure on the most vulnerable emerging market economies. They see, however, that the most important for the EM outlook and the global growth outlook more broadly, likey “is the brewing trade spat between the United States and some of its major trading partners.”
Key Quotes:
“In 2017, the global economy experienced a broad-based swing to the upside, as most advanced and developing economies experienced a synchronized pick-up in economic growth. In some ways, 2018 has been a bit more of a one-man show, as the U.S. economy has seen a marked acceleration this year. Conversely, many of the world’s other major economies, such as the Eurozone, United Kingdom, Japan, Canada and China, have thus far been growing at a slower pace this year relative to 2017.”
“As we look to the coming quarters, the U.S. outperformance will likely continue in the near term as the fiscal stimulus from tax cuts and increased government spending flow through the economy. For the rest of the world, we look for a leveling off rather than a continued slide in economic growth. Central bankers in regions such as Europe and Japan have so far maintained very accommodative monetary policy, while policymakers in China have also taken measures to support growth.”
“Our preliminary forecast for 2020 has the gap between the United States and the rest of the world narrowing further as U.S. growth moves closer to potential.”
“Perhaps the biggest risk to the near-term global economic outlook is a continued movement toward a full-fledged trade war. Developments over the past month in this area have been mixed. United States negotiators appear to have reached a preliminary agreement with Mexico on NAFTA renegotiation, but a tri-party deal with Canada remains elusive.”
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