The Organisation for Economic Co-operation and Development (OECD) again cut its outlook for global economic growth: downgrading its 2019 forecast to just 3.3%. Given that the OECD last year made a series of downgrades to their global economic outlook and the continued challenges of protectionism frustrating their namesake goals, perhaps The Organisation for Economic Continued Disappointment is a more representative name to fit the acronym.
From 3.7% expected in May 2018 to 3.5% last November to just 3.3% now, it’s clear that the slowdown has been pervasive and remains persistent. Their growth expectation for 2020 was also revised lower from 3.5% to 3.4%. Although laggardly, neither of these moderate global revisions seem particularly concerning: that is until one sees that the most dominant (large and faster growing) economies like China received only smaller revisions, thus requiring a number of acute and concentrated slowdowns elsewhere. With the 2019 forecasts for China, India and the US being lowered just 0.1% (to 6.2%, 7.2% and 2.6% respectively) that “elsewhere” is most evident in core Europe with both the powerhouse of Germany and struggling Italy having growth revised down around 1%. Germany was cut from 1.6% to now just 0.7% and Italy down from 0.9% to -0.2%. The UK too was revised down notably from 1.4% to 0.8% with the added caveat that a no-deal Brexit would turn this figure negative.
Indeed, the press conference began with the very words, “It does not look very good.” following on with, “Global growth keeps slowing and Europe is growing much less than expected, driven partly be external factors and partly by internal weakness. Uncertainty over China’s outlook has also increased. Emerging market economies do resist, but largely due to easier financial conditions. Most unfortunately trade uncertainty continues and policy risks are still there.”
Earlier this year Mario Draghi asked the European Parliament “Is this a sag or heading toward a recession?” answering himself “No, it’s a slowdown, which is not headed toward a recession. But it could be longer than expected.” Draghi’s certainty and way with words has a proven ability to direct markets, and there are few clear reasons to expect a recession in the near-term. But our models align with Draghi’s and the OECD’s expectation, that although the current slowdown is not a sure path into recession, neither is it a short-term blip. In such an environment we continue to advocate for quality credits from creditor nations where attractive yields and a greater margin of protection are still available to those that know where and how to look.