JAKARTA (TheInsiderStories) – After weakening considerably in 2019, global growth is expected to stabilize at a rate of 2.5 percent in 2020 before edging up 2.7 percent in 2021, according to the annual Top-10 Economic Predictions released today (12/18) by business information provider IHS Markit. Despite historically high levels of policy uncertainty, the probability of a recession has decreased for 2020 and now stands at one in five.
“While the global economy seems to have dodged a recession, risks remain daunting,” said IHS Markit Chief Economist Nariman Behravesh. “In the near term, the biggest threat is either an escalation of the trade conflict or the spark of trade conflicts in other regions, notably Europe. Premature repeal of fiscal stimuli is another potential risk to the stabilization we forecast.”
“A return to global growth is most likely in the second half of 2020. We are watching trade and industrial production in Europe and China for the green shoots of accelerating growth,” noted Behravesh.
The United States (US) economy is expected to expand at a rate of 2.1 percent in 2020, down from the stimulus-driven average of 2.5 percent recorded from 2017 to 2019. Growth will be supported by a few special factors, including the “phase one” trade deal with China, as well as solid consumer spending. However, the run-up to next year’s presidential election could provide some policy surprises, both positive and negative, which could affect the outlook.
The results of the United Kingdom (UK) election suggest that while the worst of the Brexit uncertainty may be over, there is still a hard slog ahead; IHS Markit expects UK GDP to drop from 1.3 percent in 2019 to 0.5 percent next year.
The Eurozone’s economic expansion will stabilize at 0.9 percent in 2020, after a growth slump this year, as low inflation and easing financial conditions continue to support consumer spending in the coming year.
China’s economy will continue its downward trend, slowing to 6.0 percent growth in 2020. The decade-long deceleration is a result of an aging population and a sharp drop-off in productivity growth, meaning that potential growth in China is lower now than a decade ago and is set to fall further. IHS Markit predicts China’s growth rate will slide further in 2021 unless the government enacts a more aggressive stimulus program.
Other Top-10 predictions include, first while the Abe government’s larger-than-expected fiscal package will neutralize much of the negative effects of Japan’s October sales tax hike, Japanese real GDP will remain weak, expanding 0.3 percent in 2020.
Second, emerging market growth will continue to be lackluster in 2020. The simmering trade war and the continued decline in China’s rate of expansion mean there is little scope for growth in the emerging world to rise much—if at all—from current rates. More local concerns such as riots in Latin America and faltering growth in India are also worrisome as is the record level of debt in the emerging world.
Third, commodity prices continue to look soft in the first half of 2020 with prices stabilizing in the second half of 2020. IHS Markit expects the average price of Dated Brent to drop from $64 per barrel in 2019 to $57 in 2020, as growing non-OPEC production and sluggish liquids demand growth to keep the oil market in surplus.
Fourth, global inflation will remain subdued at 2.7 percent next year. Fifth, the global monetary easing cycle will likely come to an end in 2020. As global growth faded this year, the US Federal Reserve lowered the federal funds rate three times, the European Central Bank (ECB) began a renewed bond purchase program and more interest rate cuts, and major emerging-market central banks lowered their policy rates. Signs of solid growth in the US suggest that the Fed may not feel the need for further “insurance” cuts.
Sixth, IHS Markit expects the US dollar will climb another 3.0 percent over the next two years, before beginning a long and gentle retreat.
As predicted in last year’s Top-10, global growth decelerated in 2019, though even faster than IHS Markit predicted, declining from 3.2 percent in 2018 to 2.6 percent this year. In all, eight out of ten of IHS Markit’s predictions for the past year were on the mark, and one was partially on the mark.
Written by Lexy Nantu, Email: email@example.com