Central banks fret over uncertain 2019 outlook

ZURICH • Central bankers' concerns about the coming year were on display on Thursday as they warned that the global economy could be entering a period of great uncertainty.

The European Central Bank (ECB) said risks to growth are deteriorating, even as it halted its flagship stimulus programme. The authorities in Switzerland and Norway cited threats with considerable potential for damage, and China's central bank chief said his economy is facing headwinds.

The warnings come a week before the United States Federal Reserve announces its next policy decision. Officials appear to be reassessing the outlook after chairman Jerome Powell hinted that the path for US interest-rate hikes next year will not be as aggressive as once thought. There is also speculation about how close the US is to a recession, with investment management firm Pimco saying on Thursday that the risks are "flashing orange".

Rising protectionism, emerging-market turmoil, Italy's budget battles and Brexit have already taken a toll - to varying degrees - on confidence, demand and economic growth. And 2019 does not offer much hope for relief. The global expansion, while unlikely to drop off a cliff, is almost certainly moving into a slower phase.

The upshot is that even after a decade of easy money, central bankers such as Mr Powell and ECB president Mario Draghi are still sounding somewhat dovish as the new year beckons.

In Frankfurt on Thursday, Mr Draghi said the global backdrop is "characterised by increased general uncertainty". In a key phrase that sent the euro lower, he said the "balance of risks is moving to the downside".


We're seeing policies that make it more difficult for growth to continue, whether it's deficit policies in the US or trade wars.

MR JACK LEW, former US Treasury secretary.

"We're seeing policies that make it more difficult for growth to continue, whether it's deficit policies in the US or trade wars," said Mr Jack Lew, who was the US Treasury secretary under former president Barack Obama. "So you're seeing a lot of uncertainty and disruption put into an economy that's already late in the cycle."

Also on Thursday, People's Bank of China governor Yi Gang said growth is facing increasing downward pressure and monetary policy will continue to be supportive. He acknowledged that relations with the US have changed. The Federal Reserve is "more unpredictable in the rate-hike cycle now than several months ago", he said.

At the Norges Bank meeting this week, officials focused "in particular on global economic prospects", citing "persistent trade conflicts and turbulence surrounding political processes in Europe".

One of those political processes - Brexit - is holding the Bank of England (BOE) hostage. Governor Mark Carney has hiked interest rates twice since late last year, but the next move is not obvious as Britain argues with itself over a divorce deal with the European Union. Until that is resolved, the BOE is in wait-and-see mode.

Many central bankers see positives in their domestic economies as lower unemployment supports demand and cheap financing encourages investment. There has also been some relief recently from a drop in oil prices, something US President Donald Trump has described as the equivalent of a tax cut. But policymakers cannot ignore the shadows forever.

"The economy can handle a short period of high policy uncertainty and market volatility," Mr Ethan Harris, chief global economist at Bank of America Corp, told clients in a report this week. "But patience has its limits."


A version of this article appeared in the print edition of The Straits Times on December 15, 2018, with the headline 'Central banks fret over uncertain 2019 outlook'. Print Edition | Subscribe