The global economy’s move from recovery to expansion may pause as some regions face a new set of challenges.
U.S. economic momentum is likely to remain solid this year and next, supported by a strong labor market, still-bullish consumer confidence and favorable manufacturing sentiment. Eurozone GDP growth has peaked and is converging toward its trend rate, with exports for the region vulnerable to turmoil in emerging markets.
For Asia-Pacific, our baseline growth outlook for the region remains broadly unchanged, given the continued solid data. However, the trade dispute's second-order effects on confidence will be key for our forward view, and these have now begun to deteriorate.
In short, the downside risks to our forecast are building. With the U.S. economy powering ahead, the Fed continuing to normalize, and the U.S. administration continuing to tighten the trade war screws, we wonder if the current benign macro picture can last. Similarly, the macroeconomic environment has become more challenging for Latin America. External financing conditions have tightened further amid ongoing dollar strength and rising U.S. short-term interest rates. This has weighed on investor confidence toward emerging market economies with large fiscal and/or external account imbalances- especially those where domestic political dynamics create uncertainty over the government's ability to implement policies that correct those imbalances.
This is notable in Brazil and Argentina--the region's biggest and third-biggest economies, respectively--and we've lowered our GDP forecasts for those two countries. Our macroeconomic outlook for the rest of the major Latin American countries has remained broadly unchanged. We still expect just more than 2% GDP growth in Mexico (the region's second-largest economy) this year and next, and trade and investor relations with the U.S. to remain strong. We also continue to expect faster GDP growth in Chile, Colombia, and Peru this year than we saw in 2017.