A recession next year appears unlikely, even though effects from the US-China trade dispute would continue to drag on global momentum, UBS Group AG said yesterday.
Economies worldwide would see weaker activity next year, but differences in each region’s vulnerability are worth paying attention to, UBS Group head of Hong Kong equities Eva Lee (李智穎) told a video conference
DBS expects global GDP growth next year to slow to 3.6 percent from this year’s 3.8 percent, while China — which would face the twin pressures of US tariffs and domestic economic restructuring — would see GDP growth drop to 5.8 percent, Lee said.
Global stock markets have taken a beating over US-China trade tensions, but UBS said it does not expect the dispute to end soon.
“Even though the two nations declared a 90-day ceasefire, it is still unclear if they will reach an agreement,” Lee said. “So far, we still think that the US will raise tariffs to 25 percent next year.”
The dispute is not just about deficits and exchange rates, but also about rules, market openness and intellectual property protections, Lee said, adding that the dispute could continue in a “talk-fight-talk” pattern.
If the tensions continue, US equity returns would rise 4 to 5 percent, while those of Chinese equities would rise 5 to 10 percent, Lee said.
If the were to US impose additional trade sanctions, the returns would dive more than 10 percent, she added.
US corporate earnings growth would fall to 4 percent, down from an eight-year high of 21 percent this year, as a one-off boost from corporate tax cuts would not be repeated and tariffs would begin to have a negative effect, UBS Group said.
It said it also anticipates 9 percent earnings growth in emerging markets and about 5 percent in the eurozone.
However, a recession next year looks unlikely, as current rates of consumption, investment and employment growth are not historically consistent with an impending recession, and the typical causes of a downturn look unlikely to materialize, UBS Group said.
How central banks respond to the increase in market volatility, economic uncertainty and evolving trade policy would also affect momentum, it said, adding that if the US Federal Reserve sticks to a tightening policy, global markets would grow increasingly sensitive to downside economic or corporate surprises.
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