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Economics Commentary

Global Macro Outlook - January 2020

10 January 2020
2 min read

What You Need to Know

Our experienced global team of economists offers its latest perspective on the world economy. Included are regional and country forecasts for growth, inflation and interest rates, updates on central bank and fiscal policies, and the upside and downside risks that could change the trajectory.

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Key Forecast Trends

  • We have upgraded our global growth forecast to reflect more encouraging news on the trade front, looser financial conditions and signs that manufacturing may finally be starting to stabilize.
  • It would, however, be premature to think that the global economy has turned a corner and that a synchronized upswing awaits. At 2.4%, our latest forecast for 2020 growth would represent one of the weakest performances since the global financial crisis.
  • There are reasons for caution. First, the cyclical backdrop remains fragile. Yes, many key manufacturing indicators have stabilized, but they have done so at levels consistent with contracting output growth.
  • Second, the secular backdrop remains challenging. Debt, demographics, sluggish productivity growth, populism and geopolitics continue to cast long shadows over the investment landscape.
  • While we have raised our 2020 growth expectations, the main contours of our view remain unchanged. Global growth is likely to remain weak for the foreseeable future while policy rates are likely to remain at record lows or move even lower.
  • What could change this prognosis? Three things. Perhaps we’re wrong on the extent to which populism and geopolitics will weigh on growth, and perhaps monetary policy will be more effective than expected. Then there’s fiscal policy: while current plans continue to look unambitious, a more radical move in this direction seems inevitable.

Outlook

  • We have upgraded our 2020 global growth forecast to 2.4% from 2.2% to reflect more encouraging news on the trade front, easier financial conditions and signs that manufacturing may be starting to stabilize.
  • Compared with consensus, we are still a touch more pessimistic on Japan (0.0% vs. +0.3), the euro area (+0.8% vs. +1.0%) and the US (+1.7% vs. +1.8%) but are now marginally more optimistic on China (+6.0% vs. +5.9%).
  • The secular backdrop continues to point to higher inflation. Cyclical developments are less supportive, but unemployment rates remain very low in many countries so that inflation could respond quickly should growth surprise even mildly on the upside.
  • The improved global outlook has reduced the need for urgent monetary stimulus. Nonetheless, risks are still skewed in that direction, and the Fed and ECB are still more likely to ease policy in the year ahead than to tighten.

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