Annual economic outlook 2020
Thought Leadership
Annual economic outlook 2020
Despite headwinds, the global economy should continue to grow with low inflation in 2020
- In several key developed economies, broad money growth has been accelerating for much of 2019. In the US, the commercial banks are effectively financing the large fiscal deficit, which in turn creates new money and has pushed the M3 broad money growth rate from under 3% year-on-year at the start of the year to 9.7% year-on-year as of November 2019. This is the highest rate of US broad money growth during this entire business cycle expansion.
- In the Eurozone, M3 broad money growth has accelerated more moderately since May 2018, from 3.4% to 5.7% year-on-year as of September 2019. This is still too low a rate of broad money growth for the Eurozone economy, although the increase in the rate of growth is positive news for the region. Brexit uncertainty has started to unwind, and M4x broad money growth has started to recover from the very low growth rates experienced in the first half of the year.
- Unfortunately, the upturn of money growth in developed markets is not apparent in emerging economies. Global trade is often seen as the main headwind for emerging economies, particularly China, but we believe there are more severe domestic headwinds affecting the economies of China and India.
Chief Economist John Greenwood and Assistant Economist Adam Burton share their outlook for the global economy in 2020.
United States
For 2020 I predict a continued upswing in US economic activity with another year of low inflation. In short, the US is still mid-cycle, not late cycle. Read more
Eurozone
The eurozone is still in the second stage of tight money (i.e. slow money growth), not the first stages of easy money. It is hardly surprising that a genuine, broad-based recovery in the euro-area has remained elusive. Read more
China and other emerging markets
In contrast to the consensus which considers China’s growth mainly at risk due to President Trump’s tariffs on Chinese exports to the US, we believe the main reasons for China’s economic slowdown are domestic. Read more
United Kingdom
Assuming a Conservative majority in the House of Commons after 12 December, Brexit uncertainty should start to reduce, and real GDP growth should return to more normal rates. Inflation should remain lower than the BoE’s 2% target and is likely to be below consensus for the first half of 2020. For 2020, we forecast real GDP growth of 1.5% and inflation at 1.7%. Read more
Japan
Unless Mr Abe’s fiscal plan is accompanied by and/or directly financed by faster money growth in the banking system, it is highly likely to suffer the same fate as the twenty or more fiscal stimulus programmes over the past thirty years in Japan. Read more
Commodities
In China and India, two markets which impact global commodity prices materially, money and credit growth continues to slow, putting the brake on economic activity. This implies little upside pressure for commodities such as metals and oil, where prices will continue to be dictated more from idiosyncratic factors on the supply-side. Read more
