“Hard” activity data from earlier in the year and a range of business surveys had pointed to a further slowdown in the world economy in the first quarter, but global GDP growth looks to have surprised on the upside. (See Chart 1.) China’s economy fared better than expected, in part due to a quick pass-through of monetary easing to the real economy and a front-loading of fiscal stimulus. But growth was also propped up by a build-up of inventories and strong construction activity, both of which we expect to go into reverse and weigh on growth in the second quarter. Similarly, Q1 GDP growth in the US was lifted by volatile expenditure components, while underlying domestic sales weakened considerably. We think that growth in the euro-zone may also have benefitted from a couple of one-offs. So, while the world economy has got off to a reasonable start in 2019, we still expect global growth to remain sluggish this year and next.
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