Slower growth in 2019 After a year of strong growth, investors are pricing in slower growth in 2019 as industrial production falls. We expect the growth slowdown to be focused in the first half of the year, followed by a pick-up by year-end. Labor markets remain resilient. Despite an apparent easing of trade tensions, tariffs remain a risk to growth and also have longer-term ramifications. James P Sweeney Chief Economist and Regional CIO Americas We expect 2019 to fit a pattern that has recurred often in recent decades: slow global industrial production growth roils markets but leaves developed market unemployment rates, inflation and corporate default rates largely unaffected. The manufacturing slowdown and associated financial volatility is likely to be focused in the first half of the year. Business surveys have recently fallen in the USA, China and Europe. We expect further manufacturing weakness as the global economy faces headwinds from tighter financial conditions, lower commodity prices and ongoing trade tensions. The major central banks will likely remain inactive in H1 as a result. However, by year-end we think global growth will be back on track. We expect the US Federal Reserve to hike rates twice in the second half of the year and the European Central Bank to begin raising rates in Q3. Resilient labor markets Labor market resilience will cut two ways. By maintaining stable consumption, it will help to prevent recessions in the USA and Eurozone, but will also create headaches for businesses due to shrinking margins. Steady labor markets will prompt policy tightening when short-term financial conditions and cyclical data allow it. The combination of weak manufacturing data and tight labor markets is already proving to be very difficult for many investment managers. Trade tensions likely to persist Tariff fears remain a risk to growth in 2019. Last year ended with a short-term truce on US-China tariffs, but the topic will be revisited and a wide range of outcomes is possible. US trade policy extends beyond the bilateral link to China. The USA could threaten other large economies with auto tariffs, which would contribute to cautious investment behavior. Geopolitical tensions are masquerading as trade tensions, as the USA’s focus on bilateral trade balances has led to questioning of global supply chains, especially in the technology sector. At stake ultimately is who will have leading roles in strategic technologies such as telecommunications equipment, microprocessors, self-driving vehicles and artificial intelligence. Taking a longer-term view Still, the trade and technology tensions are unlikely to lead to a major collapse in manufacturing that lasts through 2019 and beyond. We expect that once the 2019 global industrial production slump ends, a global economic rebound will occur, perhaps coinciding with calendar year 2020, which consensus now widely expects to be a US recession year. Now is a good time to carefully separate short, medium, and long-term forces. In the near term, we foresee a manufacturing slump. In the medium term, we expect an economic recovery amid tight labor markets and rising interest rates. It is only farther out that we foresee rising fiscal troubles and an all-new strategic landscape as new technologies and changing national and geo-political forces change the distribution of global influence. Important Information: This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.