The 2019 economic growth outlook was always a sore point for markets. The broader market (SPY) sell-off that we witnessed in the fourth quarter could be partially due to the expectation of slower global growth in 2019. The slower growth isn’t just a US phenomenon. Most of the major economies in the world are expected to grow at a slower pace this year.
In 2019, we’ve seen several agencies lower their 2019 growth outlook. Earlier, World Bank lowered the global and Chinese growth outlook. World Bank said, “Growth in China is expected to slow to 6.2 percent this year as domestic and external rebalancing continue.” China also set a growth target of 6.0%–6.5% for 2019, which is lower compared to its target last year. In March, the European Central Bank lowered its 2019 growth forecast to 1.1%. President Mario Draghi said that he sees “sizable moderation in economic expansion that will extend into the current year.” The Japanese central bank has also highlighted growth risks.
Despite these growth downgrades, markets have been strong so far. Looking at individual stocks, Apple (AAPL), Advanced Micro Devices (AMD), General Electric (GE), Micron (MU), and Alibaba (BABA) have risen 18.5 %, 26.2%, 37.0%, 24.6%, and 32.0%, respectively, based on their closing prices on March 15. Broader equity markets have been strong. The SPDR S&P 500 ETF (SPY) has risen 13.0% for the year.
As the economic activity slows down globally, central banks have taken charge.