THREE REASONS WHY
Tariffs, oil, currency and interest rates... everything is in flux, and the outlook for 2019 is looking soft, if not bleak
The outlook for the global economy in 2019 is looking set to be soft and challenging
Oil crossed $80 for the first time in four years in October. Then, a raging US President on Twitter led to an over-supplied and oversold market, causing prices to crash by 30 percent in seven weeks to under $50. Some OPEC members say they are fine with current prices, but Saudi and Russia have indicated a production cut could be in order. Meanwhile, Qatar announced it will quit Opec in January, and Iran is threatening supply lines.
Prolonged weakness in emerging markets due to a strong dollar and Sino-US trade tensions are just two of several issues that encouraged the IMF to downgrade global growth forecasts for 2019. With the German economy contracting for the first time since 2015, there are multiple headwinds “that the global economy is expected to encounter over the upcoming period,” says FXTM analyst Jameel Ahmed.
Bonds are unravelling
The US two-year and five-year yield curve inverted for the first time since the financial crisis in 2007. Inversions of the yield curve have preceded many US recessions. “Although we do see signs of U.S. economic slowdown, I don’t think we’re near hitting a recession yet,” says FXTM analyst Hussein Sayeed. How investors will remain alert as the Fed looks to is near the end of its monetary tightening policy.