Vanguard Economic Market Outlook 2019: Down but Not Out

Vanguard’s distinct approach to forecasting

To treat the future with the deference it deserves, Vanguard has long believed that market forecasts are best viewed in a probabilistic framework.

This annual publication’s primary objectives are to describe the projected long-term return distributions that contribute to strategic asset allocation decisions and to present the rationale for the ranges and probabilities of potential outcomes.

This analysis discusses our global outlook from the perspective of a U.S. investor with a dollar-denominated portfolio.

Global economy: Down but not out

As the global economic expansion enters its tenth year, concerns are growing that a recession may be imminent. Although several factors will raise the risk of recession in 2019, a slowdown in growth - led by the United States and China - is the most likely outcome.

In short, economic growth should shift down but not out.

Global inflation: Unlikely to shoot past 2%

Previous Vanguard outlooks anticipated that the secular forces of globalization and technological disruption would make achieving 2% inflation in the United States, Europe, Japan, and elsewhere more difficult.

Monetary policy: Convergence commences, with the Fed stopping near 3%

As inflation moves toward a target, financial-stability risks rise, and unemployment rates approach full employment, global central banks will stay on their gradual normalization paths.

Investment outlook: No pain, no gain

With slowing growth, disparate rates of inflation, and continued policy normalization, volatility in financial markets is likely to accelerate. Long term, our ten-year outlook for investment returns remains guarded, given the backdrop of high valuations and depressed risk-free rates across major markets.