Global Economic review 2020

2019 was reported as an unfavourable year for global growth with general momentum remaining fragile and risk factors such as trade barriers affecting potential growth. The World Bank highlights that policymakers have a range of options to boost investment and growth. In light of risks and challenges, significant policy adjustments are needed with decisive action delivering stronger development outcomes for countries.

As reported by The World Bank, global growth for 2019 has been downgraded to 2.6%, approximately 0.3% lower than earlier forecasts. This is mainly due to weaker-than-expected international trade and investment at the start of 2019. Growth is expected to rise gradually by 2021 to a projected 2.8%.

According to The World Bank Group, during a period of slowed investment global trade has weakened and elevated trade uncertainty. Increased tariffs by the United States and retaliations from China and other trading partners have affected trade flows and prices. Real GDP growth will be reliant on trade tensions easing between major economies, new stimulus measures implemented in China (and the Euro Area) and increased domestic demand in some emerging markets and developing economies (EMDEs).

The global composite Purchasing Managers’ Index (PMI) is affected from the downturn in manufacturing, as JP Morgan reported for 2019. The PMI declined during Q2-3 of 2019 due to many domestic markets remaining soft and international trade volumes continuing to contract. Market conditions will need to perform a strong recovery to signal improvements to PMI growth. The global rate of increase of all-industry new orders remained uninspiring midway through Q2 2019, continuing a decline in new export orders for goods and services.

Commodities

Commodity prices recovered in the first half of 2019 following declines in 2018, however they have remained below the previous year’s peak values. Heightened trade tensions have affected prices of some commodities; particularly metals. Price forecast levels are lowered upon reflection of weaker-than-expected global growth.

Oil prices

In 2019, production cuts against oil supported higher oil prices, which led to an improvement on the decline at the end of 2018. The World Bank reports future oil prices are vulnerable to risks, such as policy outcomes around further production cuts, impact of the removal of waivers to the U.S. sanctions on Iran and the effect of the International Maritime Organisation’s sulfur emissions regulation, which takes effect in January 2020. Future geopolitical events and weaker-than-expected growth in major oil consumers will also impact prices beyond 2020.

Metals

Metal prices are expected to continue their recovery into 2020, after the drop in late 2018. Supply concerns, specifically to copper and troubles surrounding iron ore production will impact future prices.

The World Bank reports that there is a balance in risks around prices linked to China-U.S. trade negotiations and the possible impact of growing demand from China.

Copper imports from China could be set to rise after value added tax cuts in Q2 2019, which could lead to investment in related infrastructure projects. A rise in future aluminium prices may not look as positive as compared to copper and iron ore.

GLOBAL ECONOMIC MARKET

• Climate change is impacting global economies according to IMF and studies conducted by universities in the U.K. and U.S., after many countries experienced soaring temperatures in 2019. The forecast for increasing temperatures across the globe could impact agricultural markets, labour productivity and thus impact future GDP growth.
• Potential new trade tariffs between China and the U.S. in Q4 of 2019 could impact the Chinese economy with a weakened GDP growth.
• China retaliated in Q2 of 2019 against the U.S. by raising tariffs of U.S. imports. The impact will pass through the supply chain of other world economies due to a general slow in exporting goods.
• Emerging markets and developing economies (EDMEs) have experienced softened inflation in 2019 and some countries faced financial strain. Although debt has increased across these markets the economies are expected to grow throughout 2020, albeit at a measured rate. Risks to the EDMEs include slow investments and rising trade barriers. Stronger economic growth from structural reforms is crucial to improving living standards.
• National policy actions are key for global growth, reducing trade and technology tensions and mitigating uncertainty around trade agreements. This is particularly relevant to China-U.S. trade and the U.K. market due to prolonged uncertainty of Brexit.