By Albert Robinson
The United States
A round-up of forecasts by analysts and economists show the U.S. economy will likely grow moderately, with a 2.0% - 2.1% rate expected. That’s down on the 2.5% annual rate seen in 2017 and 2018.
The U.S. Federal Reserve helped the American economy to grow in 2019 with rate cuts– albeit not of the size and pace that President Trump wanted to see.
However, both the effect of this fiscal stimulus and the huge tax reduction program Trump succeeded in passing will start to wear off this year.
With elections just 10 months away, Trump is not likely to try and force through any grand changes since the economy is doing well. In any case, with the Democrats holding the House of Representatives – where financial decisions are made – he doesn't have much chance of doing so.
Meanwhile, across the Atlantic, the eurozone is likely to stabilize after a sharp dip in 2019 which saw the critical German economy – as well as that of Italy –falling dangerously close to recession. The worst appears to be over, and eurozone growth could stabilize at just under the 1.0% mark in 2020.
The fly in the ointment could be the continuing fallout from Brexit. Although the markets were relieved with the results of the U.K. general election in December, the uncertainty is definitely not over. Both the UK government and the European Union have already laid out tough bargaining stances, and the EU has stated that completing negotiations by the end of December will be a tough task. The U.K. has seen GDP growth fall to 1.3% in 2019 and forecasts expect it to drop to 0.5% in 2020.
Will that persuade the British government to be more flexible in negotiations in the hope of giving the U.K. a boost – or will it see the growth decline as evidence that it needs to be tougher with the EU and show its muscles since it is the 5th strongest economy?
In Asia, the big story is likely to be that of China's growth rate dropping under the 6.0% rate for the first time in three decades. As a result, economists will want to know what effect will this have on China's political and economic policies, and will China soften its stance in trade talks with the United States?
China's growth rate has been dropping for the past few years, so this is less connected with the US-China trade conflict, and more due to structural and cyclical factors that are doubtless worrying the Chinese leadership: the country has an aging population and that is leading to a sharp decline in productivity growth.
China's growth is seen by some analysts as coming in at 5.7% in 2020 and slightly less in 2021. The question will be how much of a stimulus program the government approves. Given the strength of the Chinese economy over the past 20 years and the vast amounts of revenue that are tightly controlled by the regime, a huge stimulus program can be relatively easily instituted. On the other hand, the one-couple, one-child policy of the past few decades means that the enormous number of pensioners and Chinese workers heading into retirement in the coming decade present the leadership with an enormous headache.
Moving to Japan, and although its GDP growth was estimated to have risen to 1.1% in 2019 from 0.3% in 2018, it's seen declining to 0.3% in 2020 as a result of a sales tax increase to 10% from 8% instituted in October. Responding to political pressure, the government brought in a bigger than expected fiscal package of $120 billion spread over 15 months which aims to cancel out the negative impact of the sales tax hike. As a result, GDP growth is seen showing a slight recovery to 0.5% in 2021.
Regarding emerging markets, they are likely to again stand still in 2020. They are being impacted by the decline in Chinese growth, along with the China-U.S. trade war, which has depressed prices as has uninspiring growth in the developed world.
Inflation And Monetary Easing
In other aspects of the global economy, inflation is likely to remain subdued, with global inflation at between 2.5%-3.0%.
As for global monetary easing, this will likely come to an end. Strong economic growth in the United States suggests that further easing is unnecessary, indeed, it is possible that the Fed will raise rates late in 2020.
Meanwhile the situation in the eurozone is clearly much more complicated due to the number of states in the zone and the different economic situations each faces. However, there has been strong opposition to the European Central Bank's negative interest rates policy introduced in June 2014, when its deposit rate was lowered to -0.1% in a bid to stimulate the economy. This has led to a drop in demand, thus sending prices even lower and creating a downwards spiral.