2020 Economic Outlook

Update: Read the 2021 Economic Outlook here.

A quick synopsis of the 2020 global economic outlook — outlining snapshots on key countries, major central bank decisions, key political developments, and the top major risks for the US.

The global outlook for 2020 is fragile, with increasing signs that the cyclical downturn of recent years has become entrenched. Trade is weak, confidence is low and businesses are reluctant to invest. According to the OECD, we expect world economic growth to have fallen to 2.9% in 2019 — its weakest annual rate since the 2008 financial crisis. Over the next two years, growth is unlikely to climb above 3%.

Unless bold action is taken by governments now, sluggish activity will persist, threatening jobs and living standards for years to come. The trade conflict between the US and China has damaged import and export growth worldwide. Political uncertainty over tariffs and the UK-EU trade relations after Brexit are frightening away much needed business investment. The slowdown coincides with deeper, structural changes — China is transforming its economic model; digitalization is shifting the way firms of all kinds operate; and climate change presents daunting challenges across the planet. Decisive, coordinated action by governments is necessary.

Macro World Views

  • Global growth is slowing but remains positive. Conditions are expected to marginally improve in 2021.
  • Growth prospects have lifted over the last month due to progress on trade, a Conservative Party win has allowed the UK to leave the EU on January 31st, and overall easing financial conditions in the US.
  • Financial markets have gotten a lift from both an easing of trade tensions and some more constructive developments on the Brexit front, with equity values boosted, credit spreads narrowed, and yield curves steepened.
  • Leading indicators of business activity appear to be forming a trough. Research suggested that global growth would have bottomed by the turn of the year and picked up gradually over 2020, although with significant risks attached to this baseline scenario.

United States

  • Economic growth has slowed, with the latest forecasts for 2019 growth revised upwards to 2.3%, before a deceleration to 2.0% in 2020 and 2021.
  • Leading indicators for manufacturing sentiment have rebounded, and no longer point to steep further downside. However, there is some softness evident in the labor market, with jobless claims pointing to the potential downside in payroll growth.
  • Federal Reserve easing is feeding through to activity, with home equity loans up, allowing consumers to tap funding.
  • An analysis of the Fed’s short-term, treasury bill purchases (a type of short-term quantitative easing) has shown a 1:1 relationship with S&P 500 returns. The more the Fed balance sheet is set to expand, the more it will provide support to the stock market.
  • The Federal Reserve responded to the recession with a focus on monetary policies, which lifted stock prices and home prices; however, the benefits of this expansion were concentrated in fewer hands. The impact on the consumer effect, wealth effect, and overall economy was thereby driven by asset prices with a significant portion of the population not benefiting. It was a weaker and slower expansion due to widening inequality.
  • Dynamic policy analyses should be taken into account for future growth. Inequality comes in a number of different dimensions — income, wealth, healthcare, education. Policy changes in education, student loans, taxes, healthcare, etc. will also mean changes for the overall business environment as well. This agenda is confusing but is a critical input as how the market will perform.
  • The principle risk to our view remains the trade war, on both the upside and the downside.


  • The growth downgrade cycle has potentially bottomed out in the Eurozone, with 2020 growth forecasts at 0.8%.
  • Manufacturing sentiment has stalled its decline, particularly in Germany. Furthermore, the gap between European new orders and inventories has narrowed sharply, pointing to better growth.
  • Uncertainty is elevated, but set to decline.
  • The UK is set to leave the EU under Johnson’s Brexit plan on January 31st and will enter a transition period lasting through the end of the year where it will negotiate future trading arrangements with the EU. A timeline of 11 months would be unprecedented but Johnson has pledged that he will not ask for an extension past 2020, which could result in painful negotiation results for the UK.
  • Most UK firms have already put structures in place for a no-deal Brexit and therefore are largely prepared for this outcome.
  • Johnson will also need to delicately balance the majority of Scottish National Party who ran on the promise of a new referendum on Scottish independence and defend the integrity of the UK, if it wants to keep Scotland as part of the union.


  • Chinese activity is expected to rebound over the next few months, and the State Council has signaled policy support for infrastructure. 2020 growth is forecasted at 5.9%.
  • There are early signs of growth stabilization from PMI surveys and from actual infrastructure investment, as prior central bank easing filters through into activity.
  • Inflation remains a threat, as pork prices are high and rising. This may constrain the People’s Bank of China from easing more aggressively in the near-term.
  • Positive progress has been made on the trade war, but there is still the risk that talks break down and the confrontation extends beyond trade into financial, technology, security, or other arenas.

Emerging Markets

  • Emerging economies are expected to have grown 4.0% in 2019, down significantly from 2018. A rebound is also expected in 2020 to 4.4%, but stimulus is reaching its limit.
  • In Latin America, growth is expected to have risen 0.5% in 2019 to 1.6% in 2020. Political risks remain key.
  • In CEEMA (Central and Eastern Europe and the Middle East), idiosyncratic factors continue to dominate although a rebound in 2020 growth to 2.7% is anticipated.
  • In Asia, there are signs of higher activity but there is limited room for further easing. The risks are still skewed to the downside, as US-China trade talks could still resolve negatively and there are idiosyncratic and geopolitical uncertainties in many countries and regions.

Monetary Policy

  • Fed: Rates on hold for the forseeable future.
  • ECB: Delivered an easing package last quarter as expected, now rates on hold.
  • BoJ: On hold, no changes in target yields on Yield Curve Control (targeting short-term and long-term policy interest rates), possibly well into 2020.
  • BoE: No hike this year, and upturn in growth is underpinned by declining Brexit uncertainties.
  • PBoC: Stay conservative, with no easing in near-term.

Key Downside Risks

  • Iran — After the airstrike that killed Maj. Gen. Qassem Soleimani, tensions with Iran are escalating. Iran has withdrawn from the nuclear deal entirely and Trump’s actions may lead to the US withdrawal from Iraq, hindering the fight against ISIS and bolstering hardliners around the world.
  • Trade war — Escalation in the US-China trade war, and an extension of tariffs to Europe (auto tariff) would disrupt global trade activity and hit global growth hard.
  • Recession — There are prolonged and accelerated weaknesses in Chinese and European growth, combined with a possibility of a sharp correction in financial markets.
  • Geopolitical risks — Rising tensions between US-Turkey, Iran-US, Iran-Saudi Arabia, or others can spark uncertainty.

Key Themes

  • Global bottoming: There are signs that the global economy is bottoming out. We can now expect an improvement in global growth next year.
  • Trade war: There has been a clear moderation in the US-China trade war, though the threat of tariff hikes lingers and a firm deal has not been concluded.



  • As tensions with Iran become a newly developing threat, oil prices will certainly rise in the coming months.
  • Further downside risks could be if OPEC leave policies unchanged, with existing supply quotas likely to be extended.

Market Sentiment

  • Brexit and trade have moved in positive directions, and there are signs that global growth is bottoming out.
  • Monetary easing from central banks is feeding through to the global economy.


  • Global equities have rallied as better-than-feared earnings have eased recessionary concerns.


  • Further yield curve-flattening in the US through the near future is expected, supported by seasonal factors and pension demand.
  • In Europe and the UK, a steepening yield curve is likely to continue — the gap between short-term bonds yields and long-term bonds yields is increasing.

Foreign Exchange

  • Expect the euro to strengthen against the dollar, although the timing is partly dependent on political developments in the US.
  • The Japanese Yen and the Russian ruble are also expected to strengthen.


  • Unless there is an unexpectedly strong and sustained rebound in global growth next year, we expect credit spreads to widen next year.
  • USD high yield is expected to outperform EUR high yield bond spreads.

Emerging Markets

  • Chinese growth should show rebounding in Q4, though the threat of inflation may constrain more aggressive monetary easing.
  • Political risks remain in Latin America.


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2020 Global Outlook. Bloomberg Markets — P&L Podcast. January 2, 2020.

Byman, Daniel. Trump’s reckless Middle East policy has brought the US to the brink of war. January 6, 2020.

Hooper, Peter. Green shoots or false down? Deutsche Bank Research. 3 December 2019.

OECD Economic Outlook: Statistics and Projections. OECD. November 2019.

OECD Real GDP Forecasts, USA. OECD. November 2019.

OECD Real GDP Forecasts, World. OECD. November 2019.

Our take: PwC FS update. PwC. December 13, 2019.

Scotland Seeks New Vote On Independence as U.K. Hurtles Toward Brexit. NPR. December 19, 2019.

Slok, Torsten. 2020 Global Macro Outlook. Deutshe Bank research. December 2019.

The House View: Back on track. Deutsche Bank Research. 2 December 2019.

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