MHI Solutions

Economic Market Update

ECONOMIC MARKET ANALYSIS: Strong Growth in 2018 Overshadowed by Downside Risks to 2019 and 2020

* By Jason Schenker, Prestige Economics *

The U.S. economy and most material handling equipment manufacturers enjoyed solid growth in 2018. But the outlook for 2019 and 2020 is not as strong. The prospects of tighter monetary policy in the United States, rising levels of U.S. debt, and risks associated with the U.S.-China trade war present downside risks to U.S. growth, global growth and the overall material handling outlook. Additionally, rising U.S. labor costs—along with the prospects of higher capital costs—present downside risks to corporate profits.

This does not mean a Great Recession is brewing. But after many years of positive U.S. economic expansion, slower growth appears likely in coming quarters.

Trade risks threaten global growth

When trade risks increased in March 2018, business leaders and traders were forced to incorporate downside risks to growth from tariffs and trade into their strategic planning for the first time in decades. But despite these elevated risks back in March, the IMF and the Fed were reluctant to assess the magnitude of potential risks to growth from an ongoing (and escalating) trade war between the United States and China.

In July 2018, the International Monetary Fund (IMF) left its forecasts of global growth for 2018 and 2019 unchanged at 3.9 percent, although the IMF also cautioned that tariff and trade risks could reduce global economic growth by 0.5 percentage points in 2020. Nevertheless, the IMF did not officially incorporate part of that 0.5 percentage point downside risk into its growth forecasts.

By October 2018, however, the IMF was ready to incorporate some of the downside risks to growth from trade. Global growth forecasts were lowered for both 2018 and 2019 to 3.7 percent from the previously published forecasts of 3.9 percent.

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