A global economic slowdown is upon us

With the gentle accumulation of downside risks, analysts at Nomura explained that perhaps the largest downside risk to the world economy comes from China and other EMs, which collectively contributed the lion’s share to global growth in 2017 (56% based on GDP at market exchange rates or 74% based on purchasing power parity).

Key Quotes:

"China’s economy is under considerable strain from deleveraging, and we expect growth to take another leg down in Q1 2019, as lower-tier city property markets correct and payback from the front-loading of exports kicks in.

We are also not optimistic for a quick end to US-Sino trade frictions and continue to believe that the countries in EM – particularly Asia – are more exposed than their counterparts in DM, because of their very open economies that are highly integrated into supply chains with China.

Across many EM economies, financial conditions have tightened and will likely continue to do so, as the Fed continues hiking rates and as aggregate QE of the G4 central banks switches to QT, keeping investors focussed on repricing risk in EM instead of hunting for yield. Overall, we expect the next wave of EM turmoil to be centred in Asia and involve weakening growth, falling property prices, widening credit spreads and tightening market liquidity.

Drilling down, there are (positive and negative) idiosyncratic factors affecting individual EM economies (see country pages for details). Based on politics and policies we have turned more positive on Brazil, but a little more negative on Mexico.

We see geopolitical risks rising again in Russia. South Africa is set to exit its recession, and we see a palpable risk that Turkey’s economy starts contracting. In Central Europe, we judge more central banks are gearing up to normalise monetary policy. In Asia, as discussed, we believe the worst is yet to come in China, and see downside risks to (slowing) growth in India and a high likelihood of fiscal slippage in Malaysia. By contrast, we expect growth to hold up in Indonesia and the Philippines and macro policies to remain prudent."

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.