The global economy has proved so far to be resilient to the growing backdrop of trade tensions, but this is suspected to change in the near future.
For most of 2018, the performance of many major economies has been strong, and KPMG Economics in our latest Quarterly Economic Outlook predicts that growth for 2018 will be 3.8 percent. This has been achieved without any significant inflationary pressures, although several countries are now tightening monetary policy in response to fears that the inflation genie might start scrambling out of the bottle.
Growth rates differ considerably of course. India’s recent rate is 8 percent, China’s is 6.5 percent, while Japan’s is 0.7 percent. In Europe meanwhile, the region-wide growth rate is 0.4 percent. And there have been some notable flashpoints of economic distress – notably Venezuela, Argentina, Turkey and South Africa. But overall, global economic growth has been fairly solid.
Going into 2019 there may be slightly weaker growth. This is due to a number of macroeconomic factors, but particularly a possible ratcheting-up of the US/China trade war – and the endgame of the Brexit saga. KPMG also queries the ability of emerging economies to manage their foreign-denominated debt exposure in the face of a strengthening USD, driven by rising bond yields in the US.
KPMG’s growth expectations for Australia in FY19 and FY20 remain positive, albeit softer than last year. Influences such as the extreme drought conditions and the acceleration in the downturn in the housing market are expected to be a drag on growth with GDP growth moderating to 2.8 percent and 2.4 percent respectively for the next two financial years.