Investment outlook 2019: Brexit - J.P. Morgan Asset Management
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Investment outlook 2019: Brexit

Contributor Karen Ward
Brexit progress but European challenges remain

European corporates are plagued not only by geopolitical uncertainty but also by political challenges at home. At the time of writing, there is still considerable uncertainty about UK prime minister Theresa May’s ability to pass the Brexit deal through UK Parliament. Our baseline assumption is that the threat of either another referendum, or a general election, will eventually bind a majority in the House of Commons together and the deal will pass.

Beyond Brexit, there remain challenges for the European authorities in 2019. Centrist politicians are still struggling to head off populist parties. With critical European Parliament elections coming up in May, the risks are rising that Eurosceptic alliances will take a greater share of the vote. In which case, investors may become sceptical about both the longer-term prospects for integration as well as the ability of Brussels to provide meaningful leadership in the next downturn.

The stand-off between Brussels and Rome also looks set to continue. Italy is likely to be placed under an Excessive Deficit Procedure, but this is not a particularly rare occurrence. France has been in equivalent monitoring for 15 of the last 17 years (see below). We don’t expect Italy to consider leaving the euro, but the eurozone’s third-largest economy is slowing sharply as credit conditions tighten.

Excessive Deficit Procedures are not uncommon

Years spent in excessive deficit procedure (EDP)
Number of years



Source: European Commission, J.P. Morgan Asset Management. Data as of 30 November 2018.

These political fragilities, together with a more lacklustre pace of growth, could limit the ECB’s ability to lift interest rates in the second half of the year in line with their current guidance. In which case, negative interest rates will continue to pose a challenge for the profitability of Europe’s banks for some time yet.

Although the eurozone domestic economy in aggregate looks fine for now and wages are rising, ongoing weakness in global trade is likely to deter firms from hiring, in the same way as they are slimming down investment intentions. However, the recent collapse in the oil price is supportive for Europe, and consumers are still showing appetite to spend (see below), so we expect European growth to hover at around 1.5% for much of 2019. That will be enough to see a sizeable narrowing between the performance of the European and US economies over the course of the year.

Eurozone households are still planning on spending

Eurozone consumer confidence
Index level



Source: European Commission, Thomson Reuters Datastream, J.P. Morgan Asset Management. Data as of 30 November 2018.

The growth gap is likely to narrow in 2019

US GDP growth differential with UK and eurozone
% points real GDP (quarter on quarter, seasonally adjusted annualised rate)



Source: BEA, Eurostat, ONS, J.P. Morgan Multi-Asset Solutions, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forecast from Q4 2018 from J.P Morgan Multi-Asset Solutions group. Data as of 30 November 2018.

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Key themes for 2019


Important information

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