2020 Global Outlook

As promised with last month’s column highlighting my 2020 Outlook for the U.S. markets and economy, this month’s Investor’s Edge column is about my insights for the rest of the world this year. Welcome to my 2020 Global Outlook.

My global outlook for 2020 is positive with an asterisk. My forecast is for a 3.2% global GDP (Gross Domestic Product) growth rate. However, this growth will not occur if the trade talks do not go as expected, and worse yet, if additional tariffs are enacted. (As I write this, we are just a couple of days from “Phase-1” of the U.S. – China trade deal being signed at the White House by President Trump and Chinese officials.)  Cheap money is the main driver behind what I expect to be a solid global economy in 2020. The world’s economy is awash in easy money. Including the three rate cuts by the U.S. FOMC, 20 central banks have eased monetary policy over the past 12 months. And, there is no reason to expect that changing in the next 12 months. Like in America, another bright spot for global economic growth will be the continuation of consumer spending.

• Europe: Europe’s exposure to trade and reliance on manufacturing made it a casualty of the trade war and the global downturn in automobile production. 2019 saw the European Central Bank (ECB) take policy rates further negative and re-start quantitative easing. The Eurozone should benefit in 2020 from easier monetary conditions, the recovery in global manufacturing, the lifting of trade-war uncertainty and Chinese policy stimulus that increases import demand from emerging markets. The easing of political risk is also a boost to my outlook. This time last year, Italian 10-year government bond (BTP) yields were heading toward 4% and creating concerns about the solvency of Italian banks. BTP yields are under 1.2% in now, mirroring declines across Southern Europe and supporting financial conditions. This is being reflected in declining non-performing bank loans across Spain and Italy. The potential lifting of Brexit uncertainty is also a positive. Overall, I expect a gradual pick-up in growth across the Eurozone during 2020. The absence of inflation pressure means the ECB is unlikely to consider lifting interest rates.

• Japan:  Japan’s economy is suffering the after-effects of the consumption tax hike on October 1 and its exposure to the global manufacturing downturn. The uncertainty around the China-U.S. trade negotiations as well as Japan’s own tensions with South Korea have weighed on economic sentiment. Easing trade tensions and an improvement in global manufacturing should support Japan’s economy, as will a boost to spending and tourism from hosting the 2020 Olympics. There is also speculation that Prime Minister Shinzo Abe’s administration will launch a sizeable fiscal stimulus. Japan, however, is likely to remain an economic laggard relative to other developed economies. I expect persistent disinflationary pressures will keep the Bank of Japan in ultra-accommodative mode.

• Emerging Markets:  Emerging markets (EM) will walk a tightrope in 2020. They will benefit the most from a weaker dollar but be hurt most by trade tensions. First, China. Chinese policy makers are balancing the short-term requirement for stimulus against the medium-term necessity to reduce leverage in the economy. Credit growth is unlikely to accelerate sharply, but the authorities have already reduced bank reserve requirements and cut policy rates. They are also likely to increase local government bond issuance to boost infrastructure spending. GDP growth, however, is unlikely to rebound and should remain near 6%. As I said in my 2018 Outlook, China remains positive. Now, India. As one of the largest and fastest-growing markets for digital consumers, India is a market where disruptive technology is driving productivity and deflation more than generally expected. Key reforms, including the recent reduction in corporate tax rates, measures to improve the regulatory environment and monetary easing, will likely steady the economy. And, a third noteworthy EM country is Taiwan. Taiwan is seeing some spillover benefits from the trade war as its companies start onshoring some operations. Government incentives to attract operations back to Taiwan mean that this will have ripple effects on its domestic economy.

While my global economic outlook for 2020 envisions an upward path, there is a high degree of uncertainty around the forecast given unpredictability around trade and other policies. Mitigating these tensions could prove my positive forecast correct, or stimulate economic growth higher than anticipated.

WISHING YOU A GREAT 2020!

Contact me if you have any questions. I am always happy to help. Email me at jg@blackhawkweathadvisors.com. Visit my website:  blackhawkwealthadvisors.com.