5 Stocks To Prepare For A Global Economic Slowdown

On Apr 9, the International Monetary Fund (IMF) reduced its growth forecast for the year once again. The international lending body believes economic headwinds including monetary tightening by the Federal Reserve and trade conflicts could derail global growth in the months ahead.

The IMF also cited industrial production data and surveys of purchasing managers to justify its projection for slower global growth in 2019. Meanwhile, even as China implements stimulus measures to boost its flagging economy, the situation in Eurozone remains worrying.

With a lurking global economic slowdown, it makes sense to fortify your portfolio for such conditions. In such an event, demand for products and services generated by utilities, consumer staples and medical companies remain invariant. Investing in stocks from these sectors looks like a smart option.

IMF Cuts Global Growth Projections

On Tuesday, the IMF reduced its forecast for global economic growth for the third time in six months. The international lending body now believes that global growth will clock in at 3.3% for 2019, 0.2% lower than the estimate released in January. However, its projection for 2020 remained flat at 3.6%.

A major headwind for the global economy is the lingering trade war between the United States and China. The IMF thinks that the inability to come to an agreement and the resultant tariff barriers would result in “higher costs of imported intermediate and capital goods and higher final goods prices for consumers.”

And despite the Federal Reserve’s recent attempts to step away from its earlier hawkish standpoint, the IMF thinks a change in the monetary stance of central banks could also imperil global growth. The IMF thinks that market expectations for the federal funds rate is well below the Fed’s projections.

According to the global lender, this is likely to “result in higher US interest rates, renewed dollar appreciation, and tighter financial conditions” for emerging economies with large volumes of debt.

Global Stimulus Needed, Eurozone Vulnerable

Speaking at a news conference in Washington on Tuesday, IMF chief economist Gita Gopinath said that this was a “delicate moment for the global economy.” The IMF believes that coordinated global stimulus measures would be needed to cushion the impact of a sharp downturn. Gopinath added that a dovish monetary approach would also be needed to counter the slowdown.

According to the IMF, most of the global economy’s likely troubles this year will originate from problems in developed economies, including leading members of the EU. Apart from the impact of an inevitable Brexit, other factors are impeding growth in the region.

The outlook for Germany, the Eurozone’s economic powerhouse, has softened because of sluggish demand for exports and a decline in consumer spending. Tougher emission standards are also likely to weigh on sales of cars produced in the country.

Our Choices

The IMF’s decision to cut global growth projections is likely to rattle investors across the world. The risks it lays out while justifying this reduction are very real and likely to weigh on the pace of economic expansion in the near term.

Investing in stocks whose demand remains invariant even during an all-encompassing slowdown looks prudent at this time. Picking utilities, consumer staples and medical stocks for your portfolio would be a good option. However, picking winning stocks may prove to be difficult.

This is where our Zacks Investment Research

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Written By: Zacks Investment Research