2 January 2020

Ten Predictions for the Global Economy in 20202

The global economy entered 2019 facing a great deal of adversity and uncertainty, and as it prepares to end the year, much of this adversity and uncertainty remains firmly in place.  Over the course of the past year, nine of the world’s ten largest economies have seen their rate of economic growth trend downwards, with the so-called downturn-in-sync becoming a reality in 2019.  While some of those economies that slowed were those that had been expected to generate little or no growth in 2019, some of them, most notably China and India, are economies that were expected to be among the leading generators of growth for the global economy.  Elsewhere, some large economies, such as the United States and Japan, managed to continue to grow at a decent pace over the past year, even as their overall rates of growth were below those of previous years.  Now, as we prepare to enter 2020, a number of important questions regarding the state of the global economy remain unanswered, leading to a good deal of uncertainty as the new year approaches.

Before looking ahead to 2020, let’s look back at our predictions for the global economy in 2019.  These were:

  • A downturn in sync, with most of the world’s leading economies slowing over the course of 2019
  • A sharper slowdown in China, even if official growth rates do not reflect this
  • An end to Europe’s economic recovery, with Germany experiencing a major slowdown
  • A global trade war as the US-China trade dispute leads to more trade disputes among major economies
  • Increasing market volatility, with a real possibility of a market correction in the US and elsewhere
  • Non-Asian emerging markets continue to struggle to generate growth amid difficult economic conditions
  • Rising debt burdens continue to add to the level of risk facing many of the world’s largest economies
  • Labor shortages worsen in the United States, Japan, Germany and many other important economies
  • Oil prices could fall even further as supplies increase and as demand for oil weakens
  • Wealth inequality levels continue to rise in many parts of the world, provoking popular anger

Overall, our predictions for the global economy in 2019 were quite accurate, apart from the degree of market volatility experienced over the past year and the fact that oil prices did not fall significantly in recent months.  In fact, our growth forecasts for nearly all of the world’s leading economies appear to have been extremely accurate, even as we await the results from the final quarter of the year.  Unfortunately, most of our forecasts called for lower rates of growth, and these forecasts came to fruition as the global economy cooled over the course of the year.

As we look ahead to 2020, one of the most important questions is whether or not the economic slowdown that began in late 2018 and continued throughout this current year has reached its lowest point, of if the global economy will continue to slow in 2020.  If the bottom has yet to be reached, the question then becomes, how low can growth go.  Are we headed for a major global economic downturn, or simply a minor slowdown that is already on the verge of coming to an end?  To answer some of these questions, here are our ten leading predictions for the global economy in 2020.

  • Global Growth Falls Below 3%: With the global economy forecast to expand by 3% in 2019, we expect global growth to slow even more in 2020.  However, this will not be a major slowdown, as our forecast for global economic growth next year is 2.9%.
  • The United States Avoids a Recession: While the US economy has slowed over the past six months, the outlook for the US economy has improved of late.  With consumer spending remaining strong, GDP growth in the US will remain at or near 2% in 2020.
  • China’s Slowdown Continues: Even as trade tensions between the US and China have begun to ease, China’s economic slowdown will continue in 2020.  Weaker consumer spending growth will lead to China’s official rate of economic growth falling to 5.8% next year.
  • India Bounces Back, But Slowly: One of 2019’s most surprising developments has been the dramatic slowdown of the Indian economy.  In 2020, India will bounce back, to a degree, with economic growth in that country rebounding to 5.9% thanks to new stimulus measures.
  • A Difficult Year for Many European Economies: European economies have struggled to generate much growth over the past year, particularly Germany and Italy.  Looking ahead, 2020 will be another difficult year for much of Europe, with overall growth in Europe of just 1.0%.
  • Trade as a Weapon: While there are hopes for an easing of trade tensions between the US and China, the potential for trade and investment barriers to be used as a weapon by the world’s most powerful economies will continue to rise in the coming year, led by the US and the EU.
  • Localization: In recent years, automation, trade barriers and other considerations have led to more businesses deciding to produce goods and supply services closer to their end users.  This trend will accelerate in 2020, further reducing international trade and investment growth.
  • US-EU Trade War: While the prospects for a truce in the US-Chinese trade war are improving, the likelihood of a full-blown trade war between the United States and the European Union will rise in 2020, with issues such as digital taxes and airplane subsidies driving a wedge across the Atlantic.
  • Troubled Times for Economic Hubs: While Brexit has brought uncertainty to London, and while large-scale protests have destabilized Hong Kong, other economic hubs face an uncertain 2020 as they receive some of the blame for rising levels of tax evasion and wealth inequality.
  • Industrial Struggles: Many industrial sectors have struggled under the weight of slowing demand growth, changing technologies and uncertain trade relationships, and these struggles will continue in 2020, particularly in countries where domestic demand growth is slow.
  • Anti-Monopoly Sentiment Rises: 2020 will be a year in which companies that enjoy a dominant position in their industry find themselves under increasing pressure from governments around the world, a development that could worsen depending upon the result of the US presidential election.

Earlier this year, our forecasts for economic growth in 2020 were gradually reduced.  However, our forecasts have held steady in recent months as some positive developments have emerged, raising hopes that the current slowdown will not worsen.  Still, there is much room for error, and any number of developments could result in the current downturn becoming much worse in the coming year.  For example, politics could get in the way of economic growth, as popular anger is rising and as populist political leaders and parties call for a radical overhaul of the global economy.  Meanwhile, the opportunities to generate economic growth are relatively weak at the moment, as working-age population growth has come to an end in most major economies and as trade and investment growth is expected to be tepid at best.  This leaves productivity growth as the only option for generating higher rates of economic growth over the near-term, but, as we have seen in recent years, productivity growth has been nearly non-existent.  Therefore, while we are cautiously optimistic that 2020 will see the global economy expand at a level similar to that of 2019, there are many factors in place that could result in the current downturn worsening over the course of the coming year.