LPL Midyear Outlook: Emerging Markets Pacing Global Growth

We believe fundamentals are supportive of moderate gross domestic product (GDP) growth this year, as we discussed in our just-released Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets. Progress on trade is central to our growth projections, so we slightly reduced our U.S. GDP growth forecast to 2.25–2.5% for 2019.

Tariffs and trade uncertainty are getting all the headlines, but there are bright spots. Supported by strong labor markets, consumer sentiment remains upbeat and consumer spending continues to be an important driver of growth. Weekly claims for unemployment benefits have dropped to cycle lows several times this year, and this tight labor market may lead to increased wage growth in the coming months—though not enough to threaten the economy with unwelcome inflation or an aggressive response from the Federal Reserve, in our view. We expect higher incomes to lead to stronger consumer and business spending, improved corporate profitability, and higher productivity—assuming businesses get some clarity on trade. More productivity is the key to extending this already longest ever business cycle.

There are also some bright spots globally where emerging markets (EM) continue to lead developed markets in economic growth. As shown in our LPL Chart of the Day, “Economic Forecasts,” developing economies are expected to produce GDP in the range of 4.5% in 2019, more than double what is expected from developed economies.

Developed economies overseas face a number of challenges, including Brexit, protests in France, German manufacturing weakness, Italy’s difficult budget negotiations, and a pending value-added tax (VAT) increase in Japan.

On EM, LPL Chief Investment Strategist John Lynch noted, “India’s GDP growth is expected to pace growth in emerging economies. And while we wait for a potential U.S.-China trade agreement, Beijing is implementing stimulus to support the Chinese economy, with the possibility of more to come. Population growth, improved flexibility in production, economic momentum, and valuations all point to maintaining an allocation to emerging market equities.”

For more on our outlook for U.S. and global economic growth for the rest of this year, please read our Midyear Outlook 2019. Also check out our latest LPL Market Signals podcast and Street View video.

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

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International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

This Research material was prepared by LPL Financial, LLC.

Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.

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