São Paulo – Global real Gross Domestic Product (GDP) growth is forecast to decline from 3.8% in 2018 to 3.5% in 2019-2020, says the ‘Global Economic Forecasts’ report, published this Tuesday (18) by the market research company Euromonitor International. The report discusses the 4th quarter of 2018 and make projections for the end of 2018 and the next few years, focusing in quarterly macro changes for the world’s key economies, including Brazil.
The document says the growth momentum in many of the world’s economies might have peaked in 2018, and projects global expansion will start cooling down gradually. Global real GDP growth is forecast at 3.8% in 2018 – a pace similar to 2017) – declining to 3.5% in 2019–2020.
Forecasts for many advanced economies have been downgraded since Euromonitor’s previous quarterly forecast following worse than expected performance so far in 2018 and rising trade tensions. Advanced economies’ real GDP growth is anticipated to remain strong in 2018 (at 2.3%) and decline to 1.8–2.0% annually in 2019–2020.
Emerging economies’ outlook has been adversely affected by the worsening global trade and external financing conditions as well as lower investor confidence for countries such as Argentina and Turkey. According to the report, emerging economies’ GDP is estimated to grow by 5.0% in 2018 and to slow to 4.8% in 2019–2020.
Overall global risk outlook has worsened since August. Escalating trade barriers, higher political risks, and worsening financial market conditions could further reduce growth across advanced and emerging economies alike.
Brazil
Uneven economic recovery in Brazil and the apparent lack of tangible measures to kick-start the economy have prompted a downgrade in real GDP growth forecasts to 1.4% in 2018 and 2.2% in 2019. In August, Euromonitor predicted a 1.9% growth in 2018 and 2.5% in 2019.
According to Euromonitor, the downgrading of GDP growth predictions is due to weaker than expected third quarter data and a tighter monetary policy. Private sector confidence declined further before the presidential election, industrial production dropped in September and inflation has increased.
The document suggests this puts further pressure on the central bank to raise interest rates. While the new government of Jair Bolsonaro is likely to implement more private sector and investor friendly policies, it faces significant barriers to legislation due to a divided Congress.
Overall, the report says Brazil’s economy continues to slowly recover, with Q2 2018 real GDP growth of 1.0% year on year affected by the May truckers’ strike.
Export growth was affected the most, moving into negative territory due to the strike. Consumption and investment growth also slowed down, although to a lesser extent.
Brazil’s presidential race wound up on 28 October, with Jair Bolsonaro, a far-right congressman, beating leftist Fernando Haddad with 55% of votes. The report says investor and consumer confidence rebounded on the news, strengthening the Brazilian real after it reached all-time lows in September due to rising US treasury bond yields, stronger US dollar and increasing oil prices.
Inflation has stood near the government target of 4.5% for the last few months, and the document expects it to stay there in 2018–2019. Benchmark SELIC interest rate has also been steady at 6.5%, as the Central Bank is in no hurry to increase interest rates on the back of a slow rise in inflation and underwhelming economic recovery.
Risks
Deteriorating global financial market conditions have raised the risks of emerging markets slowdown or even global downturn. Combined with worse Eurozone financial market conditions and Italian fiscal policy tensions, it has amplified the chances of adverse Eurozone scenarios.
In the United States, democratic takeover of Congress suggests a lower probability of worst-case Trump policies. The risk of a global trade war has also dropped significantly with the United States, Mexico and Canada (USMCA) deal and trade talks with the European Union in the picture.
According to the report, however, the trade risks have not gone away, and they are now focused on US-China relations, with an increasing probability of US-China all-out trade war.
Translated by Guilherme Miranda
