Rashid A Mughal
A year ago, the global economy seemed poised for smooth sailing. However, as 2019 progressed, trade tensions dragged down corporate confidence and capital spending and ultimately slowed progress by nearly 60 basic points. Heading into 2020, however, the winds could shift, setting up the global economy for a third “mini-cycle recovery” in this decade-long expansion. “While this global cycle has lasted more than a decade, constant interruptions have thus far averted an exuberant stage that would threaten overheating. Those disruptions included the European debt crisis in 2011, China’s slowdown in 2014 and most recently, trade tensions. Now, with trade tensions and monetary policy easing concurrently, we think the macro-economy can continue to make forward progress”, says Morgan Stanley’s chief economist. According to Morgan Stanley’s 2020 Global Economic Outlook forecast, a recovery in global GDP growth from 2.9% in 4Q19 to 3.4% in 4Q20 (averaging 3.2% GDP growth in 2020) is expected. They also forecast 3.5% growth in 2021, up from an estimated 3% in 2019. This growth will come predominantly from emerging markets and to a lesser degree, an improving outlook in Europe. The U.S. economy continues to sit on stable ground, but its pace of growth may slow down.
In USA and Russia, growth will be around 1.8 and 1.9. Euro Area growth will be a subdued 0.9%. Japan growth will be 0% and U.K will grow 1.4%. But it will be in Asia where China will lead the growth to 6.0%.The growth in Emerging Markets will be at impressive 4.4%. Meanwhile, 20 central banks have eased monetary policy over the past 12 months with the global weighted average policy rate likely reaching a seven-year low by March 2020. Beyond this convergence, consumption improvement could also propel a mini-recovery. Today the consumer in aggregate is in relatively good shape, with healthy household balance sheets, low unemployment in developed markets and moderate wage growth. Among other positives, the corporate sector has responded to tariff threats by trimming hours rather than laying off employees, avoiding a “spillover effect” from tariffs thus far.
Less uncertainty around trade tensions is particularly key for emerging markets. In China, the combination of reduced tariff uncertainty and stable policy support could lead to improved corporate confidence and a steady expansion of the consumer class, adding up to a more optimistic outlook. “We expect growth to bottom in the fourth quarter of 2019 and recover modestly from there,” says Chief China Economist Robin Xing, whose team is forecasting GDP growth of 6% for China in 2020. Chinese industrial output increased in Q4-2019 which is a positive sign. This is also good news for Korea which has been affected by US-China trade tensions. There are other bright spots. Notably, the Brazilian economy is poised to accelerate in 2020 as historically low interest rates spur consumption and in turn investment activity. Morgan Stanley raised its GDP growth estimate for Brazil to 2.2% for 2020 and 3.1% for 2021.
Growth in Europe continues to be sluggish, but economists see flickers of life as less uncertainty about trade, policy and Brexit unleash pent-up demand. Although real GDP growth in the Euro area is likely to dip below 1% in 2020, economists expect it to pick up again by 2021. The UK may follow a similar trajectory, assuming an orderly resolution of Brexit. Uncertainty over the UK’s exit from the European Union has played no small role in dampening growth. With a resolution on the horizon, the economy could soon accelerate above trend. Economists are calling for a 1.4% bump in GDP growth for 2020 followed by 2% in 2021. Goldman Sachs Research economists, forecast 3.4% global GDP growth in 2020. The modest increase from 2019’s expected growth of 3.1% will be driven by easier financial conditions, a US-China trade détente, and reduced Brexit uncertainty. US, the number one economy of world, lowered its interest rates-3rd time in a year on 30 December 2019, to further spur the economy. The results are expected to be positive and politically in favour of Trump for the 2020 election.
According to International Monetary Fund, rising trade and geopolitical tensions have increased uncertainty about the future of the global trading system and international cooperation more generally, taking a toll on business confidence, investment decisions and global trade. A notable shift toward increased monetary policy accommodation — through both action and communication — has cushioned the impact of these tensions on financial market sentiment and activity, while a generally resilient service sector has supported employment growth.
World Bank also shares the same perception. According to them, though global growth has continued to soften this year, subdued investment in emerging market and developing economies (EMDEs) is dampening potential growth prospects. Risks to the outlook remain firmly on the downside, including the possibility of escalating trade tensions. Another concern is rising debt, which may make it difficult for EMDEs to respond to adverse developments and to finance growth-enhancing investments. Reforms to boost private investment and productivity growth are needed, particularly in low-income countries, which face more significant challenges today than they did in the early 2000s.
South East Asian outlook is solid, with growth picking up to 7% in 2020 and 7.1% in 2021. China will lead the global growth at an impressive 6-7%. Domestic demand growth is expected to remain robust with support from monetary and fiscal policy. However, Pakistan’s growth is expected to slow further to 2.7% in FY-2019/20 which began in July 2019. In Middle East and North Africa, regional growth is projected to rise to 3.2% in 2020, largely driven by rebound in growth among oil exporters. Growth among oil exporters is anticipated to pick up to 2.9% in 2020, supported by capital investment in the GCC and higher growth in Iraq. Among oil importing economies, increasing growth is predicated on policy reform progress and healthy tourism prospects.
In Central Asia, regional growth is expected to firm to 2.7% in 2020 from a four-year low of 1.6% this year as Turkey recovers from an acute slowdown. Excluding Turkey, regional growth is expected to grow 2.6% in 2020, slightly up from 2.4% this year, with modest growth in domestic demand and a small drag from net exports. In Central Europe, fiscal stimulus and the resulting boost to private consumption will begin to fade in some of the sub-region’s largest economies next year, while growth is expected to modest recovery to 2.7% in Eastern Europe and moderate to 4% in Central Asia. Growth in the Western Balkans is anticipated to rise to 3.8% in 2020. The outlook for the year 2020 is, therefore, expected to be the positive as the global growth will stay on course. The negative factors, like trade wars and Brexit are most likely to be over soon. Increased corporate and consumer confidence will also contribute towards better economic environment in 2020.
— The writer is former DG (Emigration) and consultant ILO, IOM.
