2019 Outlook: Bullish or Bearish? Take Your Pick
There’s a lot that could go wrong or right with the global economy in 2019, Bloomberg News reports. In arenas ranging from the trade war with China to the central banks’ monetary policies, a bearish or bullish outlook could prevail.
Take monetary policy, for instance. While bears maintain that liquidity will become more expensive as the world’s central banks raise interest rates led by the Federal Reserve, bulls argue that since there’s no inflation, there’s no need for higher interest rates. Moreover, “moderating U.S. growth means the Fed can pause.”
How about that moderating domestic growth? Does it mean that the economy’s growth streak will end next year and begin reversing itself?
Possibly. Or, as the bulls would have it, “there’s no sign of overheating or rampant inflation that could derail the economy, and employment remains solid. And, the Fed could decide to pause earlier than markets currently expect, easing pressure on borrowers and markets.”
Speaking of markets, Bloomberg cites bears’ concerns that a weakening economy and Fed liquidity withdrawal could wallop credit fundamentals. This would downgrade many BBB credits into junk territory.
Conversely, the bullish view is that “with the Fed’s rate-hike campaign coming to an end, and a recession avoided, returns will return to positive in 2019.” Supporting this view, Bank of America Merrill Lynch sees U.S. leveraged loans posting total returns between 4% and 5% in the coming year.
As the current year draws to a close, the U.S. and China have agreed to a temporary truce in their trade war. It won’t last, bears say. That means ongoing heightened risks of new tariffs and other barriers between the world’s two biggest economies.
“Optimists argue there’s a deal to be done,” according to Bloomberg. “Trump and Xi will agree on terms that allows greater access to China’s markets, without China surrendering its grand ambitions to create a world leading high-tech economy.”
Also giving rise to either a bearish or bullish outlook, depending on your vantage point, are energy prices, political and economic stability in the euro zone, the Brexit aftermath and sovereign debt levels. The bearish view of the latter is that we’re headed for a global debt crisis; the bulls say that as long as economic growth holds up, borrowers can continue to service their debt.
For comments, questions or concerns, please contact Paul Bubny
- ◦Economy
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