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Abu Dhabi, UAESaturday 20 April 2019

S&P forecasts global economic growth to slow this year

While the US and China will lead a decline in most major countries, the IMF sees the UAE bucking the trend

Labourers in New Delhi. While most major countries will see expansion slow, India and the UAE set to buck the trend. Reuters
Labourers in New Delhi. While most major countries will see expansion slow, India and the UAE set to buck the trend. Reuters

The direction for the global economy in 2019 is clear; GDP growth will slow in most major countries, led by the US and China, according to ratings agency S&P's Global Economic Outlook 2019.

Overall, the rate of expansion for the global economy will fall to 3.6 per cent next year from a six-year high of 3.8 per cent in 2018.

The report says the world's largest economy will see its rate of expansion fall to around 2 per cent by the end of this year after it peaked at 4.2 per cent in the second quarter of last year.

"Most of the action will come from the US," said Paul Gruenwald, chief economist for S&P Global Ratings. "The drivers will be the waning fiscal stimulus from personal and corporate tax cuts, as well as the continuation of the gradual rate normalisation by the Federal Reserve." Mr Gruenwald said there was a chance that the Fed turns more dovish after the recent rout in the US equity markets and some weakness in the macro data.

However, as The National reported, according to the IMF, the UAE will largely buck the slowdown trend. A recent report from the fund indicated that the UAE's real GDP would grow 3.7 per cent in 2019 compared with 2.9 per cent forecast for last year as momentum in the non-oil economy signalled a positive outlook for this year.

That would come off the back of a strong third quarter in 2018, where Abu Dhabi's overall gross domestic product (GDP) surged 17.3 per cent reaching Dh236 billion at current prices, figures from the Statistics Centre Abu Dhabi (SCAD) revealed at the weekend.

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S&P said China's growth story will likely be less dramatic than that of the US. The authorities in Beijing have taken a number of policy-easing measures, including lowering the reserve requirement for smaller banks and enacting fiscal stimulus in the form of ramped-up infrastructure spending. This mild stimulus will cushion the slowdown, resulting in a continued steady decline in reported growth and a lowering of the official target in 2019 from around 6.5 per cent this year.

Growth in Europe will continue to decline next year with domestic demand the main driver of activity. Consumption will benefit from falling unemployment, rising wages and lower energy prices. The weakness in the third quarter of this year was temporary, S&Psaid; with the German economy contracting, weighed down by a sharp decline in automobile production, the report forecasts growth of 1.6 per cent for 2019, from 1.9 per cent this year.

After India's growth slowed to 7.1 per cent in the September quarter - the second of the fiscal year - down from 8.2 per cent in the April-June period, the economy will expand by a still healthy 7.4 per cent in fiscal 2019, the report said, as the country heads into an election. Outside of the fallout from the recent global market volatility and the rise and fall in oil prices, the Indian economy has been largely unaffected by global developments. S&P said.

The risks to the baseline global forecast are on the downside. "Worries include the entrenchment and expansion of the US-China dispute, as well as market turbulence related to the path of interest rate normalisation by the US Federal Reserve. Brexit and Italy's fiscal woes may have an impact, but remain regional risks for the most part," said Mr Gruenwald.

On the US-China trade war, a good outcome is possible as long as the main actors change their mindset, S&P said. For the US, this means a pivot from imposing broad-based tariffs against China to starting a new Strategic Economic Dialogue (the framework used under former US President George W Bush). For China, this means recognising the country's economic model creates frictions with the existing global order.

The report noted that while a synchronised global upturn may be behind us, it does not necessarily follow that an economic deep winter is coming.

Updated: January 6, 2019 02:55 PM

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