2020 global outlook
2020 global outlook
For 2020 we've just upgraded the outlook for the world economy, two factors are important in this.
The first one is that there's likely to be a trade deal between the US and China. We think it's in the interests of both sides to strike a deal, and that we think will have a positive effect on global trade. It'll also have a positive effect on capital spending because the uncertainty that's been created by the trade tension seems to be weighing on expenditure by companies at the moment. So that's the first factor.
The second factor is that interest rates have been cut and monetary policy is quite loose at the moment. And if we look at our monetary conditions indicator, which takes account of the level of bond yields, as well as short-term interest rates, that is also saying there's a lot of stimulus going into the world economy, so we think those two things will mean that growth will be a bit stronger than we previously thought.
The outlook is still not particularly strong overall, but we do think that the US economy for example, could grow by about 1.8% in 2020, compared to our previous estimate of about 1.3%. So we're upgrading growth for the US and that means we've got stronger growth in Europe. We're also upgrading our indicators for China as well.
Preferred sectors and regions
So next year (2020) we do think in terms of regional growth, we still got quite reasonable performance from the developed economies, but we think the emerging economies actually will see a pickup in growth. This partly reflects their sensitivity to global trade, so they tend to benefit more when trade improves as we expect. It's also because a number of countries have been through quite a number of reforms. They've seen quite a bit of turbulence over the last year, and we think that as geopolitical risk settles down in the world economy, then they should do a little bit better.
Key to that will probably be the dollar being a little less strong and probably weakening a little bit that will tend to encourage more capital to flow back into the emerging markets. But in terms of our forecast, we actually have the emerging markets picking up pace next year (2020) whilst the developed economies begin to slow down.
Key risks investors should be wary of
So for 2020 we see the risk has been much more evenly balanced now in terms of the upside and the downside.
On the upside, we think that one of the upside risks would be if the US consumer started to borrow again. So the US consumer was really a driving force for the world economy before the global financial crisis. But over the last ten years it has been steadily deleveraging and reducing its debt.
Interest rates are very low, we're beginning to see mortgage borrowing pick up and so we're watching very carefully to see if the US consumer will start to borrow and spend more and that could provide quite a big boost to the world economy.
On the downside, there is a risk that the trade deal between the US and China doesn't materialize. It could mean that we could get an escalation of tariffs. It could mean that not just between the US and China but perhaps between the US and Europe. And finally the other risk that I don't think is really getting much attention at the moment is if wages were to accelerate around the world, but particularly in the US where the labor market is very tight, and that would help to boost consumption, but it would also result in higher inflation, and that's something we're keeping an eye on because I don't think the markets are really pricing that in.
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