1ECONOMICS ● GLOBALQ1 2019This report is an updated version of our Global Economics Quarterly, originally published on 13 December 2018. This follows changes to our policy rate forecasts for Mexico, Russia andIndonesia. We also include the latest reported data for a number of countries. Slowing, not collapsingGlobal growth is slowing. A few emerging economies are already in recession and much of thedeveloped world has slowed markedly: in some cases – Japan, Germany, Italy, Switzerland andSweden – into outright contraction in the latest quarter. Doubts have even started to emerge aboutthe continued strength of the US economy, the one big advanced country that has been doing somuch to lift global growth over the past year. All this is happening at a time when the trade frictionsbetween the US and China are far from resolved and when there are concerns about the Chineseeconomy more broadly. Investors are inevitably rattled, with the equity price gains of the past yearhaving been wiped out in many cases and the US yield curve close to inverting. Risks are rising but so far our global growth forecasts for 2018-2020 – which were already a bitbelow consensus – have only edged down by another 0.1% point per year in 2019-2020 whileour 2019 global inflation forecast has fallen back with the oil price.Key forecasts% _______________GDP_____________________________Inflation______________ ___2018f___ ___2019f___ ___2020f______2018f___ ___2019f___ ___2020f___World 2.9 (3.0) 2.6 (2.7) 2.4 (2.5)2.9 (3.1) 3.0 (3.3) 2.9 (2.9)Developed2.2 (2.3) 1.8 (1.9) 1.4 (1.4)2.0 (2.1) 1.6 (1.8) 1.9 (1.9)Emerging4.6 (4.6) 4.4 (4.6) 4.7 (4.7)3.6 (3.9) 4.0 (4.3) 3.6 (3.7)US 2.9 (3.0) 2.5 (2.5) 1.8 (1.8)2.4 (2.5) 1.7 (2.1) 2.1 (2.2)China 6.6 (6.6) 6.6 (6.6) 6.5 (6.5)2.1 (2.4) 2.1 (2.4) 2.0 (2.3)Japan 0.8 (0.9) 0.9 (0.9) -0.2 (-0.2)1.0 (0.9) 0.9 (0.8) 1.1 (1.1)India* 7.2 (7.3) 7.3 (7.4) 7.4 (7.4)3.7 (4.5) 4.6 (5.1) 4.3 (4.5)Eurozone 1.9 (2.0) 1.4 (1.6) 1.3 (1.4)1.8 (1.8) 1.4 (1.7) 1.8 (1.8)UK 1.3 (1.3) 1.6 (1.5) 1.6 (1.5)2.5 (2.5) 1.8 (2.0) 1.8 (1.8)Russia 1.8 (1.8) 1.5 (1.5) 2.0 (2.0)2.8 (2.8) 5.1 (5.1) 4.1 (4.1)Brazil 1.5 (2.0) 2.9 (2.9) 3.0 (3.0)3.7 (3.6) 4.4 (4.5) 4.4 (5.0)Note: *India data in fiscal year (2019 = April 2019 to March 2020) GDP aggregates use chain nominal GDP (USD) weights and Inflation aggregates calculated using GDP PPP (USD) weightsParenthesis show forecasts published in the Global Economics Quarterly Q4 2018 Source: HSBC forecastsTrade tariffs still the big headwindAlthough slower export growth has played a particularly big role in the slowdown in the likes ofEurope and Japan since the start of 2018, the direct impact of the US tariffs on global trade isonly just starting to become apparent. Irrespective of the “truce” between Presidents Trump andXi at their December meeting, trade frictions are likely to weigh on activity in 2019.Further tariffincreases have been postponed, but there has been no mention of the existing tariffs beinglifted and the possibility of US tariffs being imposed on autos is still on the table. So far theChina-specific tariffs and associated retaliatory action have had a bigger impact on US exportsto China than on China’s exports to the US. Some of this may reflect lags and frontloading but aweaker RMB and export tax rebates have also helped to limit the rise in USD prices. China hasalso been better than the US at diversifying its export growth to more rapidly-growing markets. Executive SummaryGrowth is slowing in mostregionsTrade concerns still a majorrisk ECONOMICS ● GLOBALQ1 20192Inflation risks easing, growth risks risingMarkets are rightly still alert to the potential for a bigger growth hit from the trade frictions, butfears regarding the inflation outlook have eased back since early October, helped along by thefall back in the oil price and the absence of upside surprises in the US inflation or wageindicators. Far from pricing in more rate tightening, money markets are no longer confident thatthe Fed will be in a position to deliver even one 25 bps rate rise in 2019.Barring any further dramatic decline in financial markets, we currently still expect the Fed toraise rates by 50 bps more in 2019 as the unemployment rate continues to edge lower. But, as2019 progresses and inflation does not surprise on the upside, we expect the Fed to pause. Weremain of the view that the fading fiscal stimulus and lagged impact of tightening financialconditions will feed through into slower growth and – once growth slows below potential andunemployment starts to rise – we expect the Fed to revert to 50 bps of rate cuts in H2 2020 withthe aim of preventing the slowdown from becoming a contraction.Soft landings in the US are rare after a tightening cycle. It is much more common for at least ashallow recession to follow a decade-long expansion. The Fed always hopes it can deliver theappropriate degree of tightening to bring inflation and unemployment in line with its objectiveand then ease policy quickly enough to prevent an outright recession. But, gauging theappropriate degree of tightening is particularly problematic at a time of hefty fiscal stimulus andrecord-low unemployment and now the Fed also has to assess the impact of the threat ofworsening trade frictions. So we fully accept that there are risks to our central scenario on both sides. As in 2018, the USeconomy could again surprise on the upside in 2019 so more Fed Funds increases might still happen, but currently the market is focusing on the risk of the US economy surprising on the downside. Policy options for the next downturnThe paramount concern about the next recession is what policy options central banks might stillhave at their disposal to respond. Policy rates can be cut into increasingly negative territory.More assets of a progressively wider range of public and private sector nature can bepurchased. But central banks – particularly the ECB and BoJ with their zero rates – will be muchmore constrained this time, entering the downturn with already bloated balance sheets. Theremight also be less confidence (or even adverse effects) in the likely effectiveness and long-termconsequences of new variations of the instruments. At this point attention would have to return to fiscal policy, ideally as part of a global responsesuch as that agreed at the G20 in 2009. Should the global economy find itself teetering on theedge of recession in the coming year or two, developed world bond markets would probably notprevent governments from borrowing more. The broader question when considering how to respond to another economic downswing iswhich countries can increase leverage even as others are forced to retrench. Post-2008 thefiscal stimulus and QE delivered by DM central banks saw public sector debt rise as the privatesector deleveraged, while the biggest impact of the unconventional measures unleashed by theG7 central banks was to leverage up the emerging world. Next time, the US might not want toincrease indebtedness further. China may not be in a position to, now that its 10% of GDPcurrent account surplus has disappeared. The eurozone currently looks unlikely to have thepolitical consensus or institutions to deliver a big stimulus next time.Markets are less worried byinflationFed tightening cycles rarelyend in a soft landingCentral banks will be moreconstrained next timeMajor economies may beunwilling/unable to increaseleverage in next downturn 3ECONOMICS ● GLOBALQ1 2019Key forecasts 4Trading down 5Markets unconvinced by US-Chinatrade truce 5Signs risk appetite is waning 6Global growth heading lower buthow much is exports 7The US-China skirmishes – theimpact so far 10Concerns switching from inflationto growth 16Fighting the next downswing 19Global economic forecasts 23North America 40US 40Canada 42Asia Pacific 44China 44Japan 46India 48Australia 50South Korea 52Indonesia 54Taiwan 56Thailand 58Malaysia 60Singapore 62Hong Kong 64Philippines 66New Zealand 68Eurozone 70Eurozone 70Germany 72France 74Italy 76Spain 78Other Western Europe 80UK 80Switzerland 82Sweden 84Norway 86CEEMEA 88Poland 88Russia 90Turkey 92Saudi Arabia 94South Africa 96Latin America 98Brazil 98Mexico 100Argentina 102Colombia 104Chile 106Disclosure appendix 110Disclaimer 112Contents 。。。。。。