Eurozone, US and Emerging Markets

Global Economy on the Road to Recovery in 2020

Global economy – recovery should take hold in the first half of 2020

The preconditions for a recovery of the global economy in 2020 have significantly improved due to the following factors:

- economic policy uncertainty has decreased;

- the central banks of the largest economic areas have adopted noticeably easier monetary policies in 2019;

- leading indicators on the global level already pointed to an upswing in economic activity in the 4th quarter of 2019.

In view of trade barriers remaining in place, we initially expect just a slow, gradual recovery of the global economy.

Eurozone – stable growth momentum expected in 2020

We are forecasting stable GDP growth of +1.2% for the Eurozone in 2020. We expect that pressures from foreign trade and the reduction of inventories will ease. We believe this will be offset somewhat by a decline in the pace of domestic demand growth (particularly in investment spending, which benefited in 2019 from significant non-recurring effects related to Ireland). However, given the backdrop of a brightening global economic outlook there are upside risks to our growth forecast.

Eurozone – inflation expected to increase moderately in 2020

Headline inflation in the Eurozone should rise moderately to +1.3% in 2020. This forecast is based on the assumption of a largely stable oil price and an increase in core inflation to +1.2%. However, the emerging global recovery could, analogous to historical upswings, trigger a rally in oil prices. Moreover, persistent tensions in the Middle East may support oil prices. Thus our inflation forecast for 2020 is subject to upside risks as well. Regardless of this, the ECB will continue to focus on the trend in core inflation.

USA – economy remains on growth path

US economic growth has held up well, despite a difficult environment. We expect US economic growth to remain stable. As we envisage at least no renewed intensification of the trade dispute with China, no additional pressures should emanate from this front this year. In our opinion there are no signs of imbalances the correction of which could trigger an economic downturn. Overall we expect economic growth of just below 2% this year.

Global Economy

Asia remains the growth engine of the global economy

In the 2nd half of 2019 the global economic environment continued to be weighed down by the trade dispute as well as the structural problems of the automotive sector. However, thanks to the rapprochement in the trade dispute and the avoidance of a hard Brexit, political uncertainty decreased. Apart from this, both the Federal Reserve and the ECB eased monetary policy noticeably. This provided a boost to risk appetites in global financial markets, as a result of which inter alia yields on long-term government bonds in the large currency areas (USD, EUR and JPY) increased significantly since the end of August.

Demand for safe haven currencies such as the Swiss franc and the yen also declined in this environment, which enabled the euro to gain a little ground against both currencies since the end of August. However, the trade dispute has done significant damage to global supply chains as well as investment confidence. Thus we initially expect only a slow, gradual economic recovery at the global level.

In our opinion two sectors will be particularly in focus in 2020. After the severe slump of last year, global automobile production should recover somewhat in 2020. Following a strong decline in 2019 (around -8%) the global semiconductor market should also recover and resume its long term growth trajectory. The IMF expects global GDP growth to accelerate in 2020, mainly thanks to an acceleration of growth in emerging markets.

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