Where is the economy heading in 2019? Changes in economic growth are much less volatile than the performance of stock markets. In order to forecast what will happen in an economy it is better to focus on the fundamentals, which is to say, examining causes rather than effects. In my forecast for 2018, I included as a factor of my optimism the increase in value of U.S. stocks during the first years of the presidency of Donald J. Trump. This year I include in my analysis the bumpy downward ride of stock prices in late December. In most of 2018, the wealth effect had a positive impact on consumption, which led to a third-quarter GDP growth of 4.2 percent, the largest we have seen in years.
Economist Judy Shelton, the U.S. director of the European Bank for Reconstruction and Development, recently remarked in a CNBC interview: “There is a real disconnect between the behavior of the financial markets and the underlying real economy which I think is in real good shape, especially in the United States.” The sharp decline and volatility of the U.S. stock market during the end of 2018 isn’t reflected by similar negative movements in the real economy. But the real economy will have to adjust to a scenario of higher interest rates, poor economic growth among the relevant U.S. trading partners and increased uncertainty about the future of U.S. economic policy.
Source : Forbes