For many watchers of the global economy, 2020 looks set to be an interesting year. In some ways, the worst is behind the global economy: the course of Brexit is largely set, for example, while China’s economic outlook is improving thanks to efforts made to reduce the risk of a trade war. But 2020 also brings the uncertainty of several upcoming events. Donald Trump, who has arguably reshaped the global economy to one degree or another, is set to seek re-election – and there are also some broader structural aspects to economic growth, such as interest rates, which are well worth considering.
The Role of China
No assessment of the world economic outlook in 2020 would be complete without looking at what role China might play in a changing global world. Over the course of 2019, there were some concerns as to whether or not this Asian economic powerhouse would be able to keep up its momentum as one of the world’s greatest exporters. This came after political intervention from President Donald Trump, who instituted a series of tariffs on Chinese goods being imported into the US in a bid to prioritise American manufacturing – a key constituency he needs to be able to rely on if he is to win the next presidential election, scheduled for this year.
However, it appears now that this was simply a blip in the grand scheme of things: Trump and China have now signed a so-called “phase one” trade deal, which looks set to put an end to some of the worst effects of the trade battle. This will undoubtedly be welcomed by the Chinese pharmaceutical industry, as some of the top Chinese CRO players look to the West to strike new business relationships.
Over the course of 2019, many major central banks decided either to cut interest rates or keep them at their current low rates. Everyone from the US Federal Reserve to the Bank of England was in on this project – and the consequences of this in 2020 are likely to continue to be highly relevant, even if they’re not immediately obvious.
In many parts of the West, for example, low interest rates are playing a role in fuelling demand for housing but a lack of supply to meet this demand is having a knock-on effect on house prices themselves, and causing a housing crisis in many places. It’s looking unlikely that central banks will move away from low interest rates in 2020, with the result that a global economy driven by cheap debt is likely to persist.
Last year, there were a whole host of geopolitical tensions that seemed to come to the fore – and these had knock-on effects for the global economy. One such tension was, of course, Brexit. This influenced all sorts of economic indicators: the British pound, for example, dipped to its worst position in three years at one stage. There was also a more general sense among entrepreneurs and business leaders that investors and major players in other markets were somehow holding off getting their ventures signed off until a clearer picture with Brexit emerges.
But while Brexit is far from resolved, it does now appear as though there is a little more clarity. The decisive election victory of Prime Minister Boris Johnson appears to have removed the parliamentary gridlock of recent years, providing markets with some certainty. The next key barrier will be the trade talks between the EU and Britain, and it remains unclear how these will play out.
2020 got off to a less than auspicious start, following the news that the US had killed a senior Iranian general. This caused the US dollar to nosedive in the currency markets, although it managed to recover in a matter of days. The main worry for the markets currently may not be specifically about this incident, but rather that Donald Trump may instigate more of a similar nature in the future, and that this could fuel repeated market jitters.
There’s no such thing as a crystal ball when building a global economic outlook, of course, and if there was, there’d be no need to speculate about what 2020 might hold! But it is certainly possible to investigate some of the trends and patterns and try to extrapolate. Trade is a common theme in questions about what 2020 could look like, for example. Debt is another, with many wondering what effect low interest rates will have in the long term. But in reality, only time will tell what the future holds for the worldwide economy.