Fragile 20-20 vision
Global Outlook 2020 and 2021
- An interim trade deal between the US and China should ease global trade winds. Combined with stimulus enacted over a range of economies, we expect a stabilisation and modest rebound in global activity in H1 2020.
- Yet political uncertainty, including in US, Europe, UK and Latam is likely to persist and cap any business investment rebound next year.
- Spillover from manufacturing weakness to services is expected to weigh on Eurozone activity next year. Renewed headwinds, this time on the US household sector, threatens US activity falling below stall speed in 2021.
- Improving activity should reduce the need for further monetary policy easing, beyond perhaps some residual loosening in China and other EM economies. However, we forecast renewed US softening to lead the Fed to resume easing in Q4 2020.
- The ECB looks likely to be limited on monetary space, with pressure mounting for fiscal stimulus, which we expect increasingly in 2021.
- In the short term, yields could rise further if the activity outlook improves, while the immediate reaction to insurance cuts has been positive for credit spreads.
- Insurance cuts have seen the USD lose some of its lustre in carry terms. Longer term, a divergence of policy stimulus (monetary policy to fiscal) in the Eurozone would further support the euro outlook.
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