A closely watched outlook just predicted US economic growth is about to crawl at a 'near-recession pace'

Reuters / Brendan McDermid

• The UCLA Anderson Forecast is seen as a bellweather for the state of California and the wider US economy and has predicted a weakening in growth in 2019.
• Fiscal stimulus is waning while the ability of the Federal Reserve to normalize interest rates is also lower.
• UCLA Anderson's first quarter report sees US growth slowing in 2019 before slowing even further to near recessionary levels in 2020.

A well known bellweather economic report has predicted that the US economy will slow to recessionary levels in the next year.

While the global economy started out strong in 2018, signs of its weakening will likely be everywhere by year's end," according to the UCLA Anderson Forecast published on Wednesday. The forecast has previously predicted downturns in the economy of the state of California and has a similar read on the wider US economy.

US growth will slow to 1.7% in 2019, "to a near-recession pace" of 1.1% in 2020, UCLA Anderson senior economist David Shulman wrote in the report. That prediction comes after the economy expanded at a 3.1% pace "on a fourth-quarter-to-fourth-quarter basis" in 2018.

The basis for the view comes from policy warnings that the impact of fiscal stimulus is waning while the ability of the Federal Reserve to normalize interest rates is also lower. Similarly, the ongoing US-China trade war and the potentially disastrous fallout from Brexit have increased uncertainty and has contracted global interest rates.

"The weakness is being amplified by the protectionist policies being employed by the Trump administration and the uncertainties associated with Brexit," Shulman said in the report.

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"This economic weakness has triggered a major contraction in global interest rates, making it difficult for the Fed to conduct its normalization policy, and has put a lid on long-term interest rates."

It follows a recent UBS report which indicated that the risk of US recession had risen to its highest one month level for 30 years.

Payroll employment growth will decline from its monthly record of 220,000 to about 160,000 per month in 2019 and a negligible 20,000 per month in 2020, according to the UCLA Anderson Forecast.

One positive note is the rise of the intellectual property sector, which Shulman sees as booming in 2019 given the movement of big companies to "the cloud" and companies such as Netflix and Amazon boosting the film and TV industry.