Perspective - Economic and Strategy Viewpoint

Economic and Strategy Viewpoint - December 2019

Schroders' economists suggest the global economy will probably avoid a recession in 2020, why they are optimistic about emerging markets next year, and mull the end of Japan's era of "Abenomics".

11/29/2019

Keith Wade

Keith Wade

Chief Economist & Strategist

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Senior Emerging Markets Economist

Piya Sachdeva

Piya Sachdeva

Economist

Global growth upgraded as cycle ends

  • We upgrade global growth forecasts in response to a fall in trade tensions between the US and China. Our 2020 forecast is increased from 2.4% to 2.6%, the first upgrade this year. The world economy looks set to avoid a recession as the cycle extends. Imbalances which would spark a downturn are absent and activity is gaining support from easing trade tensions and monetary policy.
  • Compared to our previous forecast, the balance of risks has become more evenly weighted. In September, the skew was toward weaker growth and higher inflation; in this update, upside and downside risks are balancing each other. This reflects the addition of reflationary scenarios and removal of some stagflationary outcomes.

Europe forecast update: a brighter external outlook

  • The eurozone growth forecast has been revised for 2020 as signs of a trade deal between the US and China, albeit a partial one, begin to emerge. Net trade is now forecast to rebound in 2020, although could suffer again in 2021 should tensions return after the US presidential election. Meanwhile, domestic demand looks robust in 2020, but as the eurozone approaches the end of its cycle, domestic growth is expected to moderate
    in 2021.
  • The UK outlook has also been upgraded, but largely due to reduced Brexit risk. While the results of the general election will be key, opinion polls suggest a smooth Brexit is in sight. This should reduce noise from stockpiling and destocking. In addition, more fiscal giveaways are likely than previously expected. However, low inflation in the near-term has delayed the next rate rise to 2021.

2020: a better year for most emerging economies

  • A better trade outcome helps lift emerging market (EM) growth expectations, and overall we think 2020 will see faster growth for the region than 2019.
  • China though will continue to slow, and is likely to abandon binding growth targets altogether from 2021.

Japan: end of Abenomics on the horizon

  • We upgrade 2020 growth due to a US-China trade war truce. Meanwhile, fiscal stimulus should help support growth in 2021 as trade tensions return and Prime Minister Abe’s term comes to an end. In the near term, the lack of inflation in October may surprise investors given the hike in VAT.

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The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.