Many investors in 2018, particularly at the end of the year, were worried the global economy was slowing and that it might slide into recession.
The concerns contributed to the weakness in share markets at the end of the year, along with a bit of uncertainty about the US Federal Reserve’s rate hike agenda and worries about the US-China trade war.
But our view is that 2019 won’t see a recession. Global growth this year will likely pick up again, which will provide a positive environment for investment markets.
There are three tentative positive signs that help convince us that 2019 will be a better one for investors.
1. Fresh stimulus
The first, which I’m a lot more confident about, is that we’re seeing increasing signs by central banks and policymakers globally that they are willing to provide more assistance to the economy.
In the US, the Federal Reserve has paused its rate hikes and said it is mindful of market volatility and slowing global growth. China has also signalled further stimulus to offset the impact of the US trade war, and we’re likely to see more stimulus coming out of Europe with the European Central Bank and German government under intensifying pressure to roll out stimulus.
2. Towards trade resolution
The second issue is trade. We need to see ongoing progress towards the resolution of the trade dispute between the US and China.
On that front, so far so good. It looks like they are heading in the right direction. The two countries agreed to pause further tariff increases until March 1 and President Trump has said that could be extended if talks with China are progressing. Chinese President Xi said the talks had so far “achieved important progress”.
Obviously, that progress needs to continue. But at the end of the day, if Donald Trump wants to get re-elected, he can’t have the US sliding into recession. He needs to resolve the trade dispute to help ensure that won’t happen.
3. Stronger economic data
Finally, while data from China and Europe indicates slowing growth, when you look at the US, we can see some positive signs with the ISM index, a survey of business conditions, picking up in January, and jobs data remaining strong. The US has also averted a return to the partial US Government shutdown which will remove a threat to the economy and add to confidence.
The three positives above are not all ticked off but they’re heading in the right direction.
So far this year we have seen pretty good gains from share markets.
But I don’t think markets are going to go in a straight line upwards. In fact, history tells us that when you come down like we did last year, it’s very rare to go straight up again.
It’s quite possible we will have volatility and setbacks along the way and we might get a setback soon.
Despite that volatility, with stimulus, a resolution to the trade war, and an eventual improvement in global growth indicators, the broad trend in share markets will be a lot healthier than we saw through 2018 and we will end up with decent returns for investors in 2019.
About the Author Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
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