BIS Annual Economic Report 2019

The year in review

It was perhaps too good to be true. In 2017, it was unusual to see a synchronised global expansion at rates above estimates of potential so late in the upswing and, moreover, to project it to continue well into the future. Some deceleration was on the cards. But when it came, in the second half of 2018, it appeared much stronger than expected. It caused tremors in financial markets and anxiety about a possible impending recession. Faced with the prospect of a weaker economy and with an abrupt tightening of financial conditions, the major central banks put the very gradual monetary policy tightening on pause. The recession has not materialised. Still, as always, the question everyone is asking is: "What next?"

Looking back, decomposing global output into its components - a purely accounting exercise - provides some insight into the factors behind the slowdown. In the second half of the year, global trade came to a halt, manufacturing decelerated and investment lost pace. By comparison, services and consumption held up relatively well, propping up the expansion.

But while it is straightforward to identify the accounting categories behind the slowdown, it is much harder to identify the underlying forces at work. That said, it is possible to point to a number of cross-currents.