Economic and Strategy Viewpoint

Economic and Strategy Viewpoint - November 2018

The market selloff, the return of fiscal policy, a slowdown in eurozone data and Bolsanaro's Brazil victory all feature in our monthly analysis of the global economy.


Keith Wade

Keith Wade

Chief Economist & Strategist

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Emerging Markets Economist

Turning to fiscal policy? (page 3)

  • The recent sell off in risk assets primarily reflects fears of weaker growth and a slowdown in corporate earnings in 2019. Our global growth indicator remains robust, but has become much more dependent on the US as others have faltered particularly in Europe.
  • As central banks look to normalise monetary policy, fiscal policy is returning to vogue as governments take a leaf from the Trump play book. We may even see extra fiscal support in the US where there is potential for a surprise Republican performance in the forthcoming mid-term elections.

Eurozone: Keep calm and carry on (page 7)

  • Forget Italy; eurozone activity indicators are down again as concerns about growth re-emerge. The manufacturing sector is struggling with new orders declining, possibly caused by the escalation in the US-China trade war.
  • Much of the weakness seems to be in Germany, particularly in the auto sector. New emission standards are to blame for the temporary drop in production and demand. 
  • Despite the reports of slowing growth, the economy is still expected to perform in line with its trend rate of growth, meaning that unemployment keeps falling, and wages continue to recover. The European Central Bank is happy to hold its course against this backdrop.

Brazil backs Bolsonaro (page 11)

  • Bolsonaro has outperformed expectations and shifted to an economic stance that pleases investors, but the real test is yet to come.
  • Without unforced errors, there is reason to expect Brazil's outperformance to continue until confronted by reality in mid-2019.

Views at a glance (page 15)

  • A short summary of our main macro views and where we see the risks to the world economy.

Please find the full document below.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.