Three years after Janet Yellen claimed the US economic expansion would not, as some considered likely, die of old age her words look suitably prophetic. At that time, and repeatedly since, there have been periodic claims that the US and other developed economies are headed into recession. That has not happened and we do not see it happening in 2019. 
Expansions typically come to an end for three main reasons: a financial crisis, as in 2008/9; a rise in inflation which triggers excessive monetary tightening; or, an external shock (for example, a natural disaster).
While the latter is impossible to predict, we can be pretty sure the first two triggers will not be seen in 2019 throughout the developed world.
US and emerging markets
President Donald Trump will aim to keep US growth strong in 2019, with an eye on paving the way for his re-election in 2020. There are four key areas in which President Trump may be able to influence developments.
First, we think – whether it is because of Trump’s tweets criticising the direction of Fed policy under Jerome Powell or not – the Fed will adopt a softer tone in 2019, with interest rates not rising as far and as quickly as the markets were discounting in late 2018.
Second – an area where Trump’s tweets have arguably been even more influential – lower oil prices will help to boost growth. Trump has tweeted that these are “Like a big tax cut for America and the World”, a point with which we agree.
Third, we think the US will back down on some of the measures that have been taken in its trade war with China. China, in turn, will be willing to make concessions on intellectual property rights, technology transfer and foreign ownership of Chinese companies.
Finally, measures to boost US infrastructure may eventually start to come through.
Very little progress on the $1trn infrastructure plan launched before the 2016 presidential election has actually been made. Although such infrastructure projects are long-term in their nature, we think that 2019 may well see the announcement of significant developments on this front.
Certainly, there are headwinds to growth but we feel confident that the US expansion will continue and that by mid-year, President Trump will be able to say, no doubt via Twitter, that he has delivered the longest expansion ever seen for the US economy. The expansion will overtake the 10-year long expansion of 1991-2001 even though the cumulative growth delivered will be little more than seen in a typical, shorter post-war recovery.
When it comes to emerging markets, one thing that risks being overlooked when there are periodic crises (Argentina and Turkey in 2018, for example) their growth has consistently been ahead of that in the developed world (see figure). We think that 2019 will be a year to (selectively) take advantage of that trend.
When there are problems in emerging economies there is always a concern that they will lead to contagion to other emerging markets. Such predictions have a firm basis in history. The Asian financial crisis in 1997/98, for example, started in Thailand and quickly spread to Indonesia, Malaysia, the Philippines and South Korea. Few Latin American countries escaped its debt crisis of the 1980s.
Greece’s problems spread to other peripheral eurozone economies in 2009/12: and although Greece was not classified as an emerging market when the crisis started, it was by the time it finished.
There were some early signs of that contagion in 2018, but it never developed to a very serious extent. We think that there are two main reasons:
First, many emerging economies now have flexible rather than fixed exchange rates: the exchange rate can take the strain of any outflows of foreign money.
Second, many emerging economies are better run than in the past. The picture is not uniform, but in Asia we would cite the Philippines and Indonesia as two economies with consistently market-friendly policies. In Latin America, hopes are high that, under the new Brazilian president, reforms will build on those already implemented.
Just as it would be completely wrong to judge ‘developed’ or ‘advanced’ economies as a homogeneous group, it would be wrong to apply the same approach to emerging economies.
Moz Afzal is chief executive of EFG Asset Management. The views expressed above are his own and should not be taken as investment advice.