Abstract
Overview: World growth still seen at just 2.5% in 2020 ▀ Although recent developments suggest that the risks of an escalation in US‐China trade tensions have eased, we doubt this will deliver a significant boost to the global economy. We still expect world GDP growth of just 2.5% this year, the weakest since the global financial crisis, after an estimated 2.6% in 2019. But the risks around the forecast now seem less skewed to the downside. ▀ While our view remains that global GDP growth is likely to have softened further around the turn of the year, the decline remains gradual. And latest survey‐based measures of activity and sentiment show tentative signs that prospects are beginning to improve, consistent with our long‐standing view that the low point for global growth will be in Q1 2020. ▀ Just as importantly, the likelihood of the US and China formally signing off a phase one trade deal in mid‐January has reduced the chances of a further flare‐up in trade tensions between the two economies. However, this has to some degree been offset by the troubling events recently unfolding between the US and Iran. ▀ We remain sceptical that the global economy is set for a major growth boost. Any healing in US‐China relations may quickly be unwound and a full reversal of the tariffs already implemented remains a distant prospect. Furthermore, some of the associated growth boost is likely to be offset by less policy support. As a result, we have raised our 2020 GDP growth by just 0.1pp in the US but by a more significant 0.3pp in China. ▀ Meanwhile, although the ongoing and broad‐based monetary policy loosening in both AEs and EMs should start to feed through to growth this year, we doubt this will be a game‐changer. Not only is policy loosening at a global level set to be fairly muted, limited spare capacity, the rising stock of global debt and elevated asset prices are likely to reduce the positive impulse from policymakers' actions.
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