January 03, 2020 Source: Financial Times

After a difficult period in 2019, all sectors are cautiously optimistic about the global economic trend in 2020. Most mainstream forecasting agencies predict that the worst storm has passed and global economic growth will rebound in 2020. The International Monetary Fund (IMF) is expected to rebound to 3.4%, and the World Bank forecasts a growth of 2.7%. However, the future development of the world economy will be largely affected by changes in the global trade situation, whether the US economy is in recession, and the debt dilemma under easing policies.

After going through a difficult period in 2019, even with the decline in global manufacturing, all sectors are cautiously optimistic about the global economic trend in 2020. Most mainstream forecasting agencies predict that the worst storm has passed and global economic growth will rebound in 2020: the International Monetary Fund (IMF) is expected to rebound to 3.4%, and the World Bank forecasts a growth of 2.7%. The main reason for cautious optimism from all walks of life is that the easing policies adopted by the major central banks have effectively offset the impact of trade frictions and the pressure of declining investment in 2019.

But this does not mean that the global economy will be smooth in 2020. The future development of the world economy is largely affected by the following factors: changes in the global trade situation, whether the US economy is in recession, and the debt dilemma under easing policies. In addition, turbulence in international financial markets, geopolitical conflicts, and domestic political conflicts in some countries may also pose risks of instability to the world economy.

Variable One: Changes in the Global Trade Situation

中 Among the key variables of this year's economic trends, the outlook for the global trade situation will be the first to pay attention. The trade friction provoked by the United States has caused a significant negative impact on the world economy, and its future evolution will be one of the important factors affecting the world economy. Increasing trade tensions between large economies, coupled with the loss of the World Trade Organization's (WTO) ability to resolve disputes between nations, may mean that international trade will return to a state of relative ups and downs.

增多 Increased global trade frictions are manifested in many aspects, such as the release of the new North American Free Trade Agreement, disputes caused by the United States' imposition of steel tariffs on Europe, and some countries are preparing to follow the US's response to French digital taxes. Although Britain will officially withdraw from the EU at the end of January this year, there is very little hope for a free trade agreement between the UK and the EU in the short term. If the two cannot agree on key issues such as the tariff rate between the UK and continental Europe or the regulatory standards between the two sides, the UK may again face the "Brexit cliff" at the end of this year, which will affect investment, business and Consumer confidence and even economic growth are putting pressure on them.

In addition, there are also signs of global economic and trade frictions spreading to the fields of technology and finance. At present, some local frictions have been shown in the fields of science and technology and finance. If frictions escalate, some countries' economies and the world economy will be negatively impacted. Friction and escalation in the field of science and technology may lead to the restructuring of value chains and technological development paths of enterprises in various countries, which will also bring changes in the global value chain and R & D pattern. The escalation of friction in the financial field will cause countries to reduce the size of capital exchanges and currency transactions, and affect the exchange of transnational goods, services, personnel, information, etc., which will also have a negative impact on world economic stability and financial stability. The World Bank has warned that the wide range of global tariff increases could be as devastating to global trade as the international financial crisis 10 years ago.

Variable 2: Will the US economy fall into recession?

There are indications that in recent years, the US economy has shown a clear trend of falling aggregate demand. The growth rate of US GDP and the rate of inflation have fallen at the same time, which is a typical feature of the decline in aggregate demand growth. In addition, the US manufacturing industry has shown signs of recession. Fed data shows that the US manufacturing output index, capacity utilization and new orders have begun to decline. The US manufacturing output index has fallen from a high of 2.6% in December 2018 to -1.5% in October 2019, and the capacity utilization rate has dropped from 77.8% to 75.2% during the same period.

In general, factors and signals that have led to further economic downturns and even recessions have emerged in the US economy, mainly including: the US federal funds rate is already at a very low level, further stimulating effects of interest rate cuts on the economy are limited, and the role of quantitative easing will also be Weakening; the risks of escalating trade conflicts and the bursting of the stock market bubble still exist; inverted U.S. Treasury yields signal a recession in the economy. However, the US economy still has factors that support economic stabilization, mainly including: the labor market is operating well, the unemployment rate is at a historically low level, and wages have risen steadily, helping to support the steady growth of US residents' income and consumption; the Federal Reserve has cut interest rates 3 times in a row, in the future There is still some room for interest rate cuts, and loose monetary policy will help prevent a further decline in the US economy; 2020 is the year of the US presidential election. Trump will take various measures to support economic growth to prevent the economic downturn from affecting his presidential election.

这种 Against this background, the US economic trend in 2020 is highly variable. As the world's largest economy, the US economy will also have a significant impact on the world economy. If the US economy continues to decline or even into recession, the world economic growth rate will continue to decline; if the US economy stabilizes, the unemployment rate does not rise, and the economy does not fall into recession, the world economy may remain relatively stable.

Variable 3: Debt dilemma under easing

Compared with the past in the current round of global economic downturn, an important difference is that the major developed economies are already near or below the lower interest rate limit, and there is limited room for monetary policy stimulus. When the US federal funds rate was far from pre-crisis levels, the Fed began cutting rates last year. After three consecutive interest rate cuts, the US federal funds target interest rate fell to the range of 1.5% to 1.75%, not far from the lower limit of interest rates. The European Central Bank and the Bank of Japan have entered a negative interest rate environment since 2014 and 2016, respectively. Without a negative interest rate and loose monetary policy, a new round of loosening policies is needed.

Under the super easing policy, global debt, whether it is corporate debt, household debt or national debt, whether developed or developing countries, is at a record high level, which is to some extent the global central bank The product of easy monetary policy to ease trade frictions and other economic shocks. And this brings new risks of uncertainty-central banks that already have low interest rates do not have much room to cut interest rates in the future to cushion any new debt shocks.

The World Bank said that global debt levels reached a record high of 230% of GDP in 2018 and have been growing ever since. The World Bank also noted that debt growth in emerging economies is particularly worrying, as these economies hold approximately $ 50 trillion in debt, making them particularly vulnerable to shocks, whether the general economic slowdown or more Trade frictions, or adjustments in financial markets. The data shows that developing countries have experienced three debt crises, all of which have brought huge destructive "bad results." The World Bank warns that the fourth wave of crises may be imminent and that the fourth wave looks more worrying than previous crises.

Developed country And developed countries cannot take this lightly. For example, the US corporate sector is heavily indebted. If corporate default rates rise, the overvalued stock market may plunge, which will have a ripple effect on consumer confidence, which in turn will have a huge impact on US economic growth expectations. International rating agency Fitch even predicts that this will halve the U.S. economic growth forecast for 2020 to 0.8%. Fitch said that the long-term valuation indicators of the US stock market are close to historical highs, which increases the possibility of adjustment.