Investing and World Outlook 2019
It has now been 10 years since the global financial crisis, and there is an increasing concern that another recession may be pending for 2019. What are some of these factors that could add to that? Well, first and foremost, a tapering down in growth by two key players: the USA, China is the most likely cause. Economic growth could slow down as lot.
The world economy is expected to grow but at a much slower pace than before, which is why forecasts express concern. It is predicted that in the US, economic growth will slow down to 2%, until money policies and expansionary fiscal policies decline. Europe is predicted to experience reticent growth.
Due to unsettled trade pressure between the U.S. and China, it is one of the largest factors contributing to this prediction, along with the Federal Reserve closing in if the U.S. employment rate reaches as low as 3%. China is expected to have a 6% growth, with policies applied to help sustain that flight. International impacts of globalization and technology will play also a role and make it quite difficult for the United States, Japan, and Europe achieve 2% inflation. In 2018, there was core inflation across different economies, and in 2019, it is predicted that there won’t be rises in core inflation in spite of low employment rates and augmented income, since higher earnings don’t equate to elevated purchaser prices, and inflation prospects will remain rather stable.
As inflation reaches the central bank’s target, there will be an increase in financial stability risks and unemployment rates will fall below estimates of full time employment.
With the slow growth and contrasting inflation rates, policy normalization by the world central banks, there will be instability in the equity and fixed income markets which may only get worse. There is a good chance of a global recession in 2019, and risk accustomed returns are anticipated to be minute, due to moderate growth and less compliant policies.
In the long term, returns on investment will improve, in 10 years time, if high short-term interest rates through key developed markets are taken into consideration.
It is expected that fixed income returns will be between 2.5 and 5%, due to increasing policy rates and greater yields as policies stabilize. This will drive the global fixed income return at 2.3-4.3% (last year’s was between 1.6% and 3.6%, to compare)
Those investing with the U.S. dollar can expect returns in global equity markets between 5.2-7.2%. This is still much lower than after crisis years when global equities had reached 12.7% yearly since the low point of the market decline.
There is a good change that return prospects will improve with better valuation as risk free rates are predicted to get higher.