Economic outlook for 2020/21: Defending growth at all costs

  • Global economic growth at 2.4% in 2020 and 2.8% in 2021
  • No further escalation of trade conflict between the US and China, but no further de-escalation either
  • Euro area to grow below potential in 2020 and 2021
  • Monetary policy will remain the main safety net

2019 has been marked by record high uncertainty. However, a broader based recession has been avoided thanks to swift and sizeable monetary policy reactions. What should we expect now for 2020 and 2021? Our team of economists share 10 forecasts:

  1. Global economic growth should have bottomed-out in Q4 2019 and then converge towards but remain below +3.0% at the horizon of 2021.
  2. US-China trade tensions should remain under control: a tariff escalation is unlikely in an electoral year. Hence, we forecast low trade volume growth at +1.8% in 2020 and +2.5% in 2021.
  3. Regardless of who wins the Presidential elections, the US should implement more fiscal stimulus in 2021 and push for even higher public and corporate debt.
  4. China will not stimulate the global economy: Chinese GDP growth should reach +5.9% in 2020 and +5.8% in 2021, thanks to moderate monetary and fiscal stimulus. It will be sufficient to meet the leadership’s goal of doubling 2010’s GDP by 2020 but the current slowdown should not be reversed.
  5. The Eurozone economy should grow below its potential rate of 1.4% in 2020-21 as the challenges of the car sector prevail while fiscal spending is expected to remain only moderate.
  6. Monetary policies will remain accommodative in most countries, offering a safety net for growth and markets.
  7. Widespread political unrest should lead to more redistributive fiscal policies and higher salaries instead of company profits.
  8. Domestic driven companies (services and construction) will outperform companies relying on foreign revenues, because of the very expansionary stance of monetary and fiscal policies, which will primarily benefit to domestic demand.
  9. Capital markets should remain in a (unusually) low volatility regime as the dampening effect of unconventional monetary policy prevails.
  10. The US dollar should depreciate by -4% in 2020 while support the risk appetite in the emerging markets thanks to very low yield environment in the advanced economies.

Read the full report of Euler Hermes’ economists here.

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