LUXEMBOURG
FABIEN VRIGNON

After 3,6% in 2018, 3,2% in 2019, global GDP growth should stagnate in 2020 and remain subdued. Among advanced economies, GDP growth would slow down to 1,4% in 2020 (after 1,8% in 2019). In emerging countries, growth would slightly improve, at 4,3% after 4,2% in 2019.  The price per barrel of Brent should average 65 dollars in 2019. We expect a price of around 60 dollars  in 2020 with a sustained growth in global production, while demand would grow little. Risks remain high and mainly to the downside. We have taken the assumption that the Sino-US trade war, which destabilizes production chains and world trade growth, should find a way out in the first quarter of 2020. US elections will be held in November 2020 and the signing of an agreement would give Donald Trump a boost, in addition to restoring the confidence of industry and households. In Europe, the issue of Brexit is still unknown and all scenarios remain possible, however the signing of an agreement with the European Union remains the most likely hypothesis. The organisation of general elections in November, with Brexit postponed until 31st January 2020, seems inevitable.

Photo: Keytrade - Lëtzebuerger Journal
Photo: Keytrade

While forward guidance suggested that the central banks of major economies of the world would tighten their rates in 2019, the impact of trade war on growth and low inflation expectations reversed decisions. All in all, in 2020 at least, interest rate levels should remain low or negative. This opportunity for debt issuers may push governments, households and businesses into debt again. These new issues would arise when global public and private (household and businesses) debt has never been higher (225% of GDP in 2017 against 214% in 2009 according to the IMF).

In the US, growth is expected at 2,2% in 2019 and at 1,3% in 2020. The cycle of economic expansion the longest in American history (124 months in September, compared with 120 months between 1991 and 2001), should end in the first quarter of 2020. Indeed, the introduction of tariffs on all imported Chinese goods would lead to an increase in consumer inflation of 0,4 percentage points, in addition to reducing the ability of firms to increase wages in line with the increase in producer prices. The risk of a reversal of the labor market could appear which would affect household confidence. Household consumption was indeed the last pillar of US growth during the first half of 2019. Nevertheless, this contraction would last only one quarter and therefore will not be considered as a recession (two consecutive quarters of contraction in activity), as 2020 will be a year of presidential elections and Donald Trump will do everything to ensure that the economy does not contract further. He should thus sign a trade agreement with China.  In addition, the Federal Reserve is expected to lower rates three times between December 2019 and March 2020 and reintroduce an asset purchase program (40 billion of dollars per month for 12 months).

In the Eurozone, growth is expected at 1,2% in 2019 and at 1,3% in 2020. Months are similar and similar in the Eurozone: on the one hand, growth is based on positive fundamentals with robust private consumption and still dynamic investments. On the other hand, external demand continues to weigh on the manufacturing sector. As we anticipate positive issues in 2020 for Brexit and commercial war, we should observe a rebound of activity during 2020. Moreover, the European central bank should remain accommodating in 2020 and support growth. All in all, euro should rebound against the dollar to 1,13 dollars at the end of 2019 and near to 1,20 dollars at the end of 2020.

In emerging countries, central banks should be accommodating, helped by lower rates in the US. It will support growth of the more financially vulnerable countries such as South Africa, Turkey or Brazil. In China, growth should decrease in 2019 (+ 6,2% after + 6,6% in 2018), and the depreciation of the Yuan and the strengthening of the authorities' stimulus should lead to a gradual slowdown in 2020 (+5,9%), with the threat of increasing risks in the longer term.

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