Global growth remains strong, but the downside risk‎ associated with trade tensions between the U.S. and China cloud prospects for an otherwise robust economy. These findings were reported in the most recent Global Outlook report, published today by Scotiabank Economics.

“The consequences of escalating trade actions are undeniable: higher prices in China and the U.S., less purchasing power for consumers in these countries, higher input costs, heightened financial market volatility and possibly higher interest rates. These effects would likely spill over from these countries to others given that China and the U.S. account for close to 34% of global GDP when measured on a PPP basis,” said Jean-François Perrault, Senior Vice President and Chief Economist at Scotiabank.

Highlights from Scotiabank’s quarterly Global Outlook for October, 2018:

  • Canada: The latest Global Outlook finds an improvement in the forecast for the Canadian economy, as NAFTA-related uncertainty decreases while the massive Kitimat LNG plant is set to boost growth in 2020. GDP growth in Canada is forecast to accelerate from 2.1% in 2018 to 2.2% in 2019 before slowing modestly to 1.8% in 2020.
  • United States: With 2018 on track to register 2.9%, growth is expected to taper off to 2.4% next year and 1.7% in 2020. But the outlook is clouded by the possibility of increased protectionism.
  • Interest Rates: The Bank of Canada’s overnight rate is forecast to double by early 2020. The Federal Reserve’s policy rate is forecast to rise 100 basis points in the next 12 months.
  • Mexico: The election of the government of Andrés Manuel López Obrador and his MORENA movement created high expectations for change in the country. Scotiabank forecasts growth of 1.9% in 2018, but beyond that the macroeconomic picture depends heavily on public policy that is still in the process of being defined.
  • Latin America: Colombia appears to be settling into a consistent growth rate of 3% to 3.5% as the new Duerte government considers fiscal reform. In Peru, with inflation contained, the 2019 growth forecast is 4.0%. In Chile, robust 2018 growth, fueled by strong domestic demand and investment, should reach 3.9% but is poised to moderate to 3.2% next year. Brazil faces important challenges regarding its fiscal situation, and there appears to be room for additional deterioration.
  • China: We expect the Chinese government to take decisive policy action to offset the growth impact of trade conflict with the U.S. and weaker domestic demand. China is poised to sail through the trade turmoil smoothly and register growth of 6.2% in 2019, although risks remain that a prolonged dispute could shift investment to other countries in the region.

Read Scotiabank’s Global Outlook online

at: https://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/globaloutlook_4Q2018.pdf

Forecast Tables: https://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/forecast_20181015.pdf

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