Entering 2019 on a weaker footing

The latest surveys and hard data suggest that the world economy has not regained any momentum in Q4. While the recent slump in oil prices should support global growth, we think that activity will soften over the next year or so, led by slowdowns in the US and China. Many other economies are also likely to lose steam. Accordingly, world trade will probably weaken even if the recent ceasefire in the US-China trade war holds. We think that core inflation has peaked in the US. Along with the economy slowing, this should prompt the Fed to end its tightening cycle by mid-2019 and to begin cutting interest rates in 2020. For now, we still think that core inflation will rise in the euro-zone, paving the way for the ECB to start raising rates next September, but the downside risks to these forecasts have grown.