Investec economists share their view of the global economy for 2020

After a turbulent 2019, businesses and investors start a new decade with a sense of cautious optimism. We forecast that global economic growth will strengthen this year, but the risks and uncertainties that curbed momentum last year will linger, threatening to derail the outlook once again. We analyse the key challenges and what they mean for the world’s major economies.


Key calls for 2020:

  • Driven by emerging markets, global economic growth will increase to 3.3% this year after a post-crisis low of 2.9% in 2019.
  • The strengthening in global activity is unlikely to be enough to trigger a mass reversal of 2019’s widespread interest rate cuts. Indeed, we expect further easing by various major central banks, including in the US, eurozone, Australia and China.
  • The US economy looks set to run against the grain, with growth slowing to 1.8% from 2.3%. We see the Federal Reserve cutting the funds target range by 0.25% to 1.25%-1.50% in the first quarter and do not expect a hike until the end of 2021.
  • While the weakness of manufacturing is having a dampening effect on eurozone economies, especially Germany, there are few signs yet of a spillover into services. Indeed, recent data hint that the sector may have bottomed out. While a 0.1% cut in the European Central Bank’s deposit rate to -0.60% looks likely in the first quarter, an increase in asset purchases beyond the current €20bn per month is doubtful. We expect the euro to make modest gains against the US dollar and end 2020 at $1.15.
  • In the UK, the decisive win of Boris Johnson’s Conservative Party at December’s election means the government should be able to pass the legislation needed for the UK to leave the European Union on 31 January. Britain will then enter a transition period until at least the end of the year.
  • But uncertainty over a UK-EU free-trade agreement may become a significant focus during the year as markets recognise that negotiating a deal by the end of 2020 is ambitious. We envisage sterling trading at $1.35 and 85 pence against the euro at the end of 2020, but expect some jitters in the meantime, perhaps around mid-year.
  • Our 2020 UK economic growth forecast is 1.2%, weaker than 1.3% in 2019, but this is an arithmetic quirk. Average quarterly growth will be a touch firmer at 0.4%, supported by some strengthening in investment as Brexit uncertainties ease somewhat. In this scenario, we forecast the Bank of England’s keeping interest rates at 0.75% through 2020.
  • Downside risk and uncertainties prevail though much of our global assessment, including surrounding the U.S.-China trade talks.

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