Fiscal stimulus key to global growth in 2019, more so in EMs: Goldman Sachs

Global economic growth should be somewhat softer next year as tighter financial conditions bite.

That’s the view of economists at Goldman Sachs Group Inc. led by Jan Hatzius, who note that fiscal policy is emerging as a key support for growth as other governments join the US in pulling fiscal levers.

“Looking ahead to 2019, we expect a similar contribution of fiscal stimulus to global growth as in 2018, but the composition shifts from being US-centric to being more broadly based across developing markets and emerging markets,” the analysts wrote in a note.

While that will provide some cushioning for the global economy, it’s hard to map out an absolute path for the world’s gross domestic product growth next year.

“An increase in the price of oil, for example, could present a downside risk; and on the upside, continued slack and a long-awaited improvement in productivity could leave economies with more room to grow,” the economists wrote. “That said, our analysis suggests that growth in 2019 should be somewhat softer than it has been in 2018.”

Goldman’s preliminary global current activity indicator slipped to 3.7 per cent in October from just above 4 per cent mid-year and around 5 per cent at the start of 2018.