navigating choppy waters: 2020 global & us economic outlook... · oren klachkin leadeconomist...
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January 2020
Navigating Choppy Waters: 2020 Global & US Economic Outlook
Oren KlachkinLead [email protected]
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Global economy stays in low gear
Global economy will grow 2.5% in 2020
Stalled trade growth and weak investment
-20
-15
-10
-5
0
5
10
15
20
2004 2006 2008 2010 2012 2014 2016 2018
CPB world trade
Coincident indicator (smoothed)
Leading indicator (smoothed)
World trade and world trade indicators% year 3mma (volume)
Source : Oxford Economics/Nederland CPB
Solid employment trends keep consumers spending
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-4
-3
-2
-1
0
1
2
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Surveys of employment intentions* (LHS, adv. 6 months)Employment (RHS)
Advanced economies: Employment
Source : Oxford Economics/Haver Analytics
Index % year
* Weighted average of US, Eurozone and UK surveys
25% probability of a global recession
US will be a sub-2% economy in 2020
Longest US expansion on record
Stalled business investment & weaker consumer spending
9
-6
-4
-2
0
2
4
6
00 02 04 06 08 10 12 14 16 18 2020
ConsumptionNonresidential InvestmentResidential InvestmentInventoriesNet ExportsGovernment SpendingReal GDP
Source : Oxford Economics/Haver Analytics
Real GDP Growth Contribution%
Forecast
Consumers doing heavy lifting
Labor market still strong, but poised to moderate
• 111 consecutive months of expansion!• Wage growth slipped to 2.9% y/y in December 2019 – weakest since July 2018• ECI for private wages and salaries held at 2.8% y/y in Q3, near cycle highs
Dec 2019
145,000
184,000
176,000
12
Cooler income growth will lead to softer spending
Corporate profit margins continue to be squeezed
Business confidence has softened
14
Strong dollar will remain a constraint in 2020
15
Core business orders and shipments remain weak
Low inflation will prompt one more Fed rate cut in 2020
Recession risks are low
An update on trade tensions
Tariffs on the rise
Trade policy uncertainty remains high
Don’t call it NAFTA, even if USMCA looks like it
The intrinsic importance of the deal is not what it does to modernize NAFTA, but rather what it prevents: a potentially-disastrous breakdown of trade between the US and its most important trading partners
Still-high trade tensions boost recession odds
23
Global recession odds have declined but we expect an extended period of uncertainty, depressing growth, low interest rates and weak investment.
We forecast US GDP growth will moderate to 1.7% in 2020 following an estimated 2.3% advance in 2019.
Cooler employment trends should lead to a gentle glide in disposable income growth and consumer spending. But elevated personal savings, low interest rates, moderate inflation and healthy confidence levels should prevent a hard landing.
Weaker global growth, persistent trade tensions, lingering policy uncertainty and subdued corporate profitability will continue to act as a powerful brake on business investment in the coming quarters.
After three Fed rate cuts in July, September, and October 2019, we expect one more 25bp rate cut in June 2020.
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