Economic and Market Commentary

Around the World: 2020 Cyclical Outlook

What are the major issues affecting key regions around the world in 2020? Joachim Fels, global economic advisor, and Scott Mather, CIO U.S. core strategies, discuss U.S. Fed policy, Brexit, European manufacturing, and growth in Japan and China.

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Tina Adatia, Fixed Income Strategist: I'd like to turn now and do a round-the-world look from a regional outlook perspective. So can we maybe start with the US, Joachim, and can you give a quick, brief overview of what we're expecting now?

Joachim Fels, Global Economic Advisor: So growth in the US, weaker first half,

Chart: The chart shows a map of the U.S. and lists 2020 outlook projections for GDP (down:1.5% to 2%) and CPI (up: 1.75% to 2.25%).

something like 1% annualized growth, and then a pickup back to 2, or maybe even above 2% in the second half of this year.

And in terms of the Fed outlook, Fed on hold, but the bias is for further easing if necessary.

Tina: Now, let's shift to UK and Europe. Of course, there's been a lot of uncertainty last year due to the Brexit discussions, so what does 2020 hold? What, what would we expect?

Scott A. Mather, CIO U.S. Core Strategies: We think there's far less of a chance of a disorderly Brexit outcome that creates a major downturn in economic growth. And on the other side of Brexit, we do expect there will be some fiscal spending. So that can happen sooner than many people realize.

Chart: The chart shows maps and 2020 outlook projections for the U.K. GDP (down:0.75% to 1.25%) and CPI (down: 1.25% to 1.75%) and the eurozone for GDP (down:0.75% to 1.25%) and CPI (down: 0.75% to 1.25%).

And if we're right about already seeing the bottoming out of the manufacturing recession, which has been playing out in Europe, then it's an improved picture for European growth, given that we get rid of some of that hard Brexit fear and you see some confidence returning from a bottoming in that manufacturing cycle.

Tina: Okay. And Scott, if I can also ask you to cover Japan and quick outlook on Japan as well, what we're, what we're expecting there? Rates are already so low, so, so what would you expect there?

Scott:Well, they are. We think it's a low growth outlook for Japan, but it's still decent. 

And it's important to note that Japan's been doing, quietly, much better than people think, when you adjust for demographics.

Chart: The chart shows a map of Japan and lists 2020 outlook projections for GDP (down:0.25% to 0.75%) and CPI (same: 0.25% to 0.75%).

And so when you adjust, you look at levels of growth based on the population and the working population, it's actually been doing relatively well. And we think in the next year it'll, it'll do relatively well, if we've seen this bottoming in the global manufacturing cycle.

Tina: Joachim, if you can cover in our round-the-world, China and our expectations of China? Of course, we talked about trade and that being a little, a little bit more stable now, but what does the outlook for China look like for 2020?

Joachim: Yeah, so I think the trend continues to be for slower growth in China, right, as their per capita has been rising. 

Chart: The chart shows a map of China and lists 2020 outlook projections for GDP (down:5.0% to 6.0%) and CPI (up: 3.0% to 4.0%).

It's quite natural for growth to slow down from these extraordinary high rates that we saw earlier in the last decade. But there's some near-term recovery coming or some stabilization coming due to the stimulus that they have been implementing last year.

For policymakers, it's really a balancing act between support and demand on one hand. They don't want growth to slow too fast. And at the same time, not pumping up the credit bubble further. So we see moderate support, mainly fiscal support, and the fiscal support is coming mainly by tax cuts, you know, a little bit of easing of liquidity conditions. Recently, we just had another cut in required reserve ratios for the banks, so this supportive. But overall the outlook is for further slowdown in growth, but it's going to be a controlled slowdown.

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