general » World Economic Outlook 2020 – is a slight upswing possible?

World Economic Outlook 2020 - is a slight upswing possible?

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Since autumn 2018, the economic outlook for the global economy has declined. As feared at the beginning of 2019, the real gross domestic product (GDP) of the world grew less strongly in 2019 than in 2018. With a little chance, we have passed the economic bottom in 2019, so that somewhat stronger growth is possible in 2020.

Global economic situation: Where are we now?

An important source for global economic forecasts is the “International Monetary Fund” (IMF). In April 2018, the IMF assumed that 2018 and 2019 could be two years of solid growth. In the course of 2018, however, it became apparent that the global economy would in 2018 not develop as well as expected. The IMF therefore noticeably reduced its growth forecasts during the year 2019 (see figure 1). In the October 2019 forecast, the IMF only assumed growth of 3.0 percent in 2019 for the global real GDP.

GED_Blog_World_Economic_Outlook_2020_FIGURE-1

One important reason for the weaker growth is the protectionist trade policy of the U.S. In combination with the Brexit, which was repeatedly postponed during 2019 and is still not completed, the trade conflict between the U.S. and China is increasing uncertainty for all economic players worldwide.

Uncertainty: poison for the economy

Global economic development is generally suffering from increasing uncertainty among economic players. And this uncertainty weakens the economic development of the world through several channels (see figure 2):

  • If companies fear that demand in the economy will decline, investments will no longer be profitable. Total economic investment is shrinking. The demand for capital goods is declining.
  • If citizens fear that they could lose their jobs in the future, they will save money for a possible period of unemployment. Private consumer demand is therefore declining.
  • If both the demand for capital goods and the demand for consumer goods fall, production and employment in the economy will decline. As a result, GDP is shrinking.
  • A decline in production and employment has a negative impact on the willingness to invest and the propensity to consume. The economic downturn continues.

The global connection of all economies means that the economic downturn in one country is transmitted to the rest of the world.

GED_Blog_World_Economic_Outlook_2020_FIGURE-2

Geopolitical conflicts increase global uncertainty

To make matters worse, the US-Chinese trade conflict and the upcoming Brexit are by no means the only sources of tension worldwide. Japan and South Korea are heading for another trade conflict.

In addition to economic conflicts, there are also geopolitical conflicts, some of which are (or could become) military in nature: the Ukraine conflict, the Syria conflict, the North Korea conflict, just to name a few.

Rays of hope on the economic horizon

Despite all these uncertainties, there are also some glimmers of hope. Contrary to the trend towards increasing protectionism, the free trade agreement between the EU and Japan came into force in February 2019, for example. Further agreements are being negotiated by the EU.

A slight de-escalation is emerging in the trade conflict between the U.S. and China. One of the reasons for this may be that the negative effects on the U.S. economy, which are associated with punitive tariffs, are becoming increasingly noticeable. It is to be expected that the U.S. government will reduce economically harmful policies in the upcoming election campaign. This would stabilize the global economy.

The coming end of the Brexit chaos should also have a stabilising effect. Most companies have now prepared themselves for a hard Brexit. And even if the UK withdraws from the EU without a far-reaching trade agreement, negotiations on such an agreement can begin.

Outlook for 2020

In summary, it can be stated that we live in economically uncertain times – an uncertainty primarily the result of political decisions (protectionism, Brexit). Going into 2020, it seemed like the worst of this was behind us and the global economy had a chance at growth, however modest. The recent escalation of geopolitical conflicts could however put that scenario in doubt.

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