Global outlook summary
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The global economy has received some potential signs of respite lately—US monetary policy is likely to be looser than expected, oil prices have fallen and there is a pause in the US-China trade war—but this will not be enough to shift the gloom that currently sits over the outlook. The Economist Intelligence Unit still expects the global economy to slow in 2019, to 2.7%, as slight upward revisions to our China and US forecasts are offset by some weakness in the euro zone. The most significant development for the global economy relates to US monetary policy. On November 28th Jerome Powell, the chairman of the US Federal Reserve (Fed, the central bank), surprised global markets when he struck a dovish tone on the outlook for monetary policy. In a speech focused on financial market stability, Mr Powell stated that interest rates were "just below the broad range of estimates" of the neutral rate, that is, an interest-rate level that neither stimulates nor slows the economy. Although his formulation leaves the door open for additional rate increases, this was clearly a shift in tone for Mr Powell. As recently as October 3rd Mr Powell had remarked that the Fed was "a long way off" this neutral policy rate. The Fed also placed greater emphasis on the need to base monetary policy decisions on incoming data. This is another shift, as the central bank had previously placed greater weight on forward guidance, a technique in communicating monetary policy intentions to reassure markets about the future direction of the policy rate.
