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Questions loom for an aging economic cycle

As the current economic expansion approaches the longest on record, Wells Fargo economists provide their domestic and global outlooks for 2019.

December 27, 2018

The current U.S. economic expansion — that began in June 2009 — has now been in place for 114 months, and Wells Fargo economists expect 2018 to finish as one of the best of the past 10 years.

Global Economist Jay Bryson, Wells Fargo head of Currency Strategy Nick Bennenbroek, and Senior Economist Mark Vitner share their domestic and global outlooks for 2019. (5:47)

However, as we witness the second-longest U.S. economic upswing on record, the question remains, “How long can this aging cycle last?” Attempting to forecast the answer to that question is the premise for a 2019 outlook report from the Wells Fargo Securities Economics Group (PDF).

“Although we expect real GDP growth will slow somewhat from the rate that will be achieved in 2018 (nearly 3 percent), we forecast the expansion will remain intact through 2019 and 2020,” said Global Economist Jay Bryson. “However, some of the factors that have contributed to strong economic growth this year are beginning to fade, including the income-boosting effects of tax cuts and stronger growth in real government expenditures. In addition, higher interest rates are really beginning to weigh on the housing market.”

Bryson recently hosted a roundtable discussion with Senior Economist Mark Vitner and Nick Bennenbroek, head of Currency Strategy, to dive into the impact these changing factors may have on U.S. and global economies in 2019.

“We estimate that the global GDP has risen 3.7 percent in 2018, which would make it the strongest year of global GDP growth since 2011,” said Bennenbroek. “But, we anticipate some deceleration in the global economy in 2019, in part due to slower growth in China — the world’s second largest individual economy — and the uncertainty of the United Kingdom’s Brexit from the European Union.”

What does all this mean for 2019? The report recognizes that ultimately the economy has strong momentum behind it at present, which should keep the expansion intact for the next 12 months.

But as Vitner noted, “There are also some credible downside risks to the forecast that should be kept in mind, including inflation conceivably rising more rapidly in coming months if wages accelerate further due to tightness in the labor market.”

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