Page 17 - Economic report 2018

the European stock market (Eurostoxx shrank 14.3%). Losses were also generalised but smaller
in the USA (the Dow Jones fell 5.6% and Nasdaq 3.9%). In Japan, the Nikkei index also lost
12.1% of its value. However, in the first four months of 2019, this trend reversed and the main
world stock markets recovered the losses seen in the last quarter of 2018.

2. Prospects

In the first few months of 2019, the divergence between rising growth in the USA and the
weak Eurozone economy continued, although GDP data were generally better than expected.
The first part of the year was also characterised by the upswing in oil prices, euro depreciation
against the dollar, the temporary halt in the progressive normalisation of monetary policy, the
recovery in the world stock markets and the lack of a Brexit deal delaying the exit date until
31 October 2019.

In this scenario, there are still downside risks, notably the escalation in trade conflicts,
geopolitical tensions in the Middle East, greater-than-expected deceleration of the Chinese
economy and uncertainty over Brexit. The inclusion of some of these risk factors in the IMF
and OECD outlooks, added to the negative impact of weaker activity in the second half of
2018, explain the downward review of predicted world growth for this year by both bodies.
Both the IMF and the OECD predict growth of 3.2% for 2019 and a slight recovery in 2020
to rates of 3.4%-3.5%. These prospects are globally positive but also alert to the fact that
growth is fragile and seriously prone to risks.

Equally, the IMF predicts that the economy will improve gradually in the second half of 2019 15
due to the combination of different factors, such as the improvement in global financial markets,
the progressive stabilisation of the economic situation in Turkey and Argentina, the economic
stimulus policies launched by China and some still dynamic labour markets in the developed
economies combined with wage increases, boosting household income and spending.

As a result of this scenario, the IMF predicts Surprise in the USA at higher-than-
that the growth rate of advanced economies expected growth in the first quarter.
will slow by three tenths to reach 1.9% in
2019, and also predicts that the growth rate
of the economies of emerging and developing markets will slow by four tenths, to 4.1% in
2019. This slower growth rate in 2019 will occur in a generalised manner in practically all
emerging and developing economic areas.

In the first quarter, interannual growth of 3.2% in the US economy was a surprise, the highest
interannual rate since 2015, continuing the progressive acceleration that started mid-2016.
It seems, therefore, that the trade tensions with China, the progressive increase in interest
rates by the Federal Reserve, the closure of the Administration due to a lack of agreement
on the budgets, and the fact that one year has passed since fiscal stimuli were introduced in The external environment of the Andorran economy | I. The international economy
December 2017, have not as yet undermined the economic trend in the US.

For this reason, the OECD predicts that the US economy will grow 2.8% in 2019, only one
tenth less than in 2018, strong growth based on domestic demand. Inflation, on the other
hand, rebounded in March, but underlying inflation, more closely linked to economic activity,
remained stable. In fact, price growth in 2019 is predicted to be 2% on annual average, four
tenths less than in the previous year. This context of contained inflation supports the current
Fed strategy of lowering interest rates, such as on 31 July 2019, when they were cut 0.25%
to 2-2.25%.