We believe that after a globally synchronised slow down over the past 18 months global growth is now
bottoming out well short of recession territory and will get back on track early next year.
While activity may slow a bit further from its current levels in the near term, we are optimistic when
looking forward several quarters. Uncertainty about trade policy and national politics are getting
resolved, there is limited inventory overhang, and the still unprecedented monetary easing is feeding
through into the global economy.
Key to our optimism is that the risks of trade wars and
Brexit are evolving in positive ways, and the possibility of a radical policy shift to the far left in
the US and the UK after their respective elections seems remote. The US has rightly hesitated to
implement tariffs on European auto exports, the US and China are making progress on a broad trade deal,
and the revised-NAFTA deal could still get a vote this year. On Brexit, assuming a withdrawal agreement
passes as is our expectation, focus will soon move to the trade negotiations between the EU and the next
UK government, but the tail risk of a no-deal exit has receded significantly. Furthermore, a historic and
deep-rooted change towards a more activist dovishness in the three most important central banks, the Fed,
the ECB and the BoJ, is keeping volatility low and providing a backstop to the performance of the large
As a result our baseline forecasts have improved. Recent data from Germany has been
better than expected, and we now forecast growth to register 1.0 per cent next year, up from 0.5 per cent
this year. In the US, we expect growth to dip to 1.3 per cent in the fourth quarter, but then to rebound
back above 2.0 per cent thereafter. Meanwhile, we expect China to continue its slow, managed deceleration
without getting derailed. Our confidence in the underlying macro outlook underpins our market views.
We remain bullish on equities, especially in the US, where we expect the S&P500 index to move higher by
the end of Q1 next year. Despite improving economic performance we do not expect interest rates to rise
much beyond current levels. A global overhang of savings and historically dovish central banks stand in
the way of a normalisation of yield curves. I expect the USD to remain strong, reflecting relative
interest rates and economic performance even if our FX team worry about US political risks potentially
weighing on the Dollar in 2020.
Deutsche Bank David Folkerts-Landau, Group Chief
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