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Boost to global economy in 2020, predicts Schroders’ chief economist

2 January 2020

Easing trade tensions between China and the US, coupled with lower US interest rates, should boost the global economy in 2020, according to Schroders.

Following a spell of weaker growth, the asset manager has now upgraded its global growth forecast for next year from 2.4% to 2.6%.

It expects to see a “phase one” deal between the US and China emerge, which would prevent the two nations implementing further tariffs on exports and prompt global trade and business investment to strengthen.

According to Schroders chief economist Keith Wade, the prospect of at least a partial trade deal between the US and China would spell good news for the export-driven economies of Europe. It has raised its forecast for the region from 0.9% to 1.2%.

It also forecasts a better outlook for emerging economies, as trade recovers and inflation remains limited. In particular, Brazil looks positive for the year ahead, as pension reforms boost confidence, encouraging economic activity, while Russia remains focused on economic stability and steady, but low growth.

Schroders said 2020 will also be a significant year for China, after the government pledged in 2010 to double the size of the economy and average incomes by next year. To meet these targets, growth will need to stay at the 6% level.

In addition, the global economy is likely to benefit from lower interest rates. Monetary conditions, including central bank interest rates, bond yields and the US dollar, are the loosest for a decade, making it easier for households and businesses to borrow.

Yet, despite a better growth outlook, global inflation remains relatively stable, and Wade sees a healthier balance between growth and inflation risks, suggesting that alongside stronger wages, households could react to lower interest rates by borrowing and spending more, with the US consumer becoming a driver of global growth.

Wade said: “Broadly, we now see the balance of risks between growth and inflation as more evenly spread. Underpinned by the strength of the US labour market, there remains a risk of wages accelerating by more than expected in our central view. This should be positive for consumption, but could prompt the Fed to tighten policy to cool the economy and dampen inflationary pressures.”

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