Our outlook for the global economy is informed by a view the world continues to pass through an ongoing cycle of Crisis, Response, Improvement and Complacency - or CRIC.
The world is now moving out of stimulus-driven Complacency and back into the Crisis and Response phases. Coming into 2019, we were of the view we had passed ‘peak growth' in economic and earnings terms and we would have a slower-growth year. While the term Crisis is too strong to describe what is actually happening in the US - with too much debt, oil and automation, GDP growth is indeed decelerating. However, we believe the probability of a near-term recession remains low.
China has been in the Crisis part of the cycle for a couple of quarters already, driven by falling GDP growth and the trade war impacts. This fade into Crisis is somewhat inevitable, given the intense period of Chinese - and more recently US - stimulus that is now rolling off. China is leading the way into Response, by acting to support growth by re-stimulating through various government measures. The US has followed with the Federal Reserve's recent pivot to a more dovish stance. If a trade agreement between the US and China is reached, we believe Chinese business confidence will improve and the economy should start to stabilise.
Such a scenario would also be positive for Europe, where we have a modest overweight exposure, as the region benefits disproportionally from Chinese growth. Within the region, we are carefully contrarian on Brexit and continue to find interesting stock-specific ideas on the Continent.
Select emerging markets remain attractive, but not as attractive as they were earlier last year. Trade war concerns and slowing economic growth have weighed heavily on investor sentiment in China, but fundamentals remain robust for many of the country's leading innovative and durable technology platform companies. We think the outlook for Brazil looks favourable, as the country enters a more pro-business climate - which should translate into improving prospects for economic growth.
Innovators on the right side of change
More broadly, innovation is unleashing powerful secular forces that are generating new business models and creating significant disruption. It is getting more and more valuable in a low-growth world to own companies disrupting industries and gaining market share - even if the stocks trade at a premium. With disruption occurring across nearly every industry, being on the right side of change will be paramount for investors given the dispersion of outcomes between winners and losers.
We see many of these of innovative opportunities in the Communication Services sector. Amid the changing media, entertainment and communications landscape, a number of companies are benefitting from strong user engagement and/or subscriber growth. Our focus is on highly innovative, secular growers within the entertainment and internet services spaces.
For example, we recently added to our stake in social media platform Facebook. In our view, Facebook's share of consumer time spent on mobile devices, coupled with its ad monetisation and targeting capabilities, should help it generate advertising-led revenue growth over the next several years. We also believe there is additional optionality around Instagram, WhatsApp and the Stories feature.
We also recently added to our position in global search leader Alphabet. With its world-class computing infrastructure and elite engineering and data science capabilities, we think Alphabet is well placed to extract value from the economy as the world becomes increasingly digital.
Elsewhere in the sector, we initiated a position in Electronic Arts during the first quarter of the year. The leading video game publisher owns many popular sports franchises continuing to benefit from the mix shift to digital. Additionally, it is seeing tremendous early success in Apex Legends, its new free-to-play battle royale title, which we believe could be a breakout hit.
Dave Eiswert, portfolio manager of the T. Rowe Price Global Focused Growth Equity Fund