What is the macro picture for the year ahead?

With this in mind, what can be expected of 2019? Are we to return to the depths of recession, or will the coming year signal a turnaround in fortunes for the global economy?

Andrew Bell, chief executive of Witan, is optimistic: “Equity valuations appear very reasonable to us, given that interest rates are set to remain low and assuming recessionary risks, such as from adverse trade policies, are avoided."

He adds: “Recent months have seen more encouraging news on trade disputes, interest rates, oil prices and even Brexit (where a cliff-edge, no-deal exit now seems improbable). Equity markets have chosen to focus on worries about slowing economic growth that may prove to be overblown.”

Not everyone shares such a positive outlook, however, with some expecting the bumpy ride to continue for much of the next 12 months.

Our view is that it will be a short and shallow recession, and therefore there will be an opportunity for long-term investors to increase their exposure to equities in the next growth cycle.Zehrid Osmani

Zehrid Osmani, portfolio manager of the Martin Currie Global Portfolio Trust, explains: “As we continue to look forward, given that we are in the later stage of the longest expansionary economic cycle in the financial markets, there is a growing risk of recession coming up in the next two to three years.

“For us, however, it isn’t so much about whether a recession will happen because it is likely. The more important aspect to reflect on and analyse is what shape the next recession will have; specifically, will it be a shallow or deep recession, and will it be short or long lasting?

"Our view is that it will be a short and shallow recession, and therefore there will be an opportunity for long-term investors to increase their exposure to equities in the next growth cycle.”

What goes down, must come up

The unknown quantities of a potential recession will also have a significant impact on the monetary policy decisions made by central banks, particularly as inflationary pressures mount. 

On a global front, Schroders' chief economist and strategist Keith Wade forecasts an increase in inflation to 2.9 per cent for 2019, based on higher inflation in emerging markets as a result of currency weaknesses and the impact on import prices. 

For the UK, however, inflation is expected to fall from 2.5 per cent in 2018 to 1.8 per cent in 2019 due to softer oil prices and on the basis an orderly Brexit would strengthen sterling against most currencies. 

He says: “For the Bank of England, we look for two rate rises [in 2019], although this is dependent on a smooth exit from the EU with a transition period for the economy.

“Meanwhile, the European Central Bank (ECB) is expected to end its asset purchase programme in January 2019 and to raise interest rates in September. Although eurozone growth is expected to be weaker next year, it will still be above trend and sufficient for a central bank keen to start raising interest rates from ultra-low levels.”

For the US though, the trade war with China and higher import tariffs are likely to result in inflation remaining elevated for the majority of next year. 

In spite of this, Mr Wade expects that the Federal Reserve will “look through above-target inflation in 2019 and pause to take account of the effects of slower growth on future price rises”, having increased interest rates a further three times to a peak of 3 per cent by June 2019.

Trade wars

There are, of course, additional headwinds that could have a negative effect on the global economy in 2019, most notably when it comes to trade agreements.

The UK and Europe are at loggerheads over Brexit, and the US and China have locked horns over imports and exports, both of which have contributed to one of the worst year-ends for global investors in recent history.

China’s share of international trade now exceeds that of the US, making trade tensions between the two countries inevitable and a geopolitical risk going forward.Andrew Jackson

Hussein Sayed, chief market strategist at FXTM, highlights: “The S&P 500 has fallen 4.6 per cent from the beginning of the month [December], and if it remains at current levels until year’s end it will mark the worst performing December since 2003.

“Neither the dovish statements we heard from the Federal Reserve’s policy makers nor the trade truce between US President Donald Trump and his Chinese counterpart Xi Jinping provided signs of relief to the financial markets.”

A year of resolution?

For Andrew Jackson, head of fixed income at Hermes Investment Management, protectionism is the main risk clouding the growth outlook.

He explains: “China’s share of international trade now exceeds that of the US, making trade tensions between the two countries inevitable and a geopolitical risk going forward.

"The macro impact of measures announced so far is marginal, but a broad-based retaliation would have vicious consequences.”

As the door closes on yet another volatile year, Simon Gergel, portfolio manager of Merchants investment trust, suggests that in spite of interest rate, inflation and trade pressures, 2019 “promises to be a year of resolution” – for the UK at least.

He concludes: “The fog should gradually lift on what Brexit will actually mean for the UK as well as who will be leading the country.

"An end to uncertainty could release pent-up demand in the economy and could herald a return of foreign buying of UK equities, and a revaluation of the stock market from depressed levels.”

Jenny Turton is a freelance financial journalist