Euromonitor International Analytics offers precise answers to vital business questions in an increasingly fast-paced and uncertain world. Our Macro Model provides regularly updated forecasts and ‘what-if’ scenarios for core macroeconomic variables, including GDP, growth and unemployment. Its global scope ensures our macro forecasts and scenarios reflect the economically inter-connected world in which we live.
Our baseline global GDP growth forecast has remained stable since Q1 2019 at around 3 % in 2020 (similar to 2019), improving slightly to 3.2 % growth in 2021. This reflects offsetting effects of improvements in the US and Japan outlooks, countered by a worsening outlook for the Eurozone and India.
Positive factors in the outlook remain above average – this includes consumer confidence in key economies, supportive monetary policy and low financial system stress. Negative factors in the outlook include ongoing geopolitical and trade war risks, declining business confidence, high corporate debt levels in key economies, as well as the recent uncertainty surrounding the coronavirus outbreak. The January 2020 US-China phase one trade deal has eased the risks and uncertainty surrounding a trade-war escalation since the end of 2019. On the other hand, the recent coronavirus outbreak in China may easily cut 0.1–0.3 % off our 2020 global GDP growth forecast once more precise data about its impact in Q1 is available. As the outbreak spreads more significantly on a global scale, risks of a downturn in consumer spending, reduction in business investment and production will need to be addressed.
The US
Positive factors in the outlook include above average private sector confidence and strong disposable income growth, which should continue to sustain consumption growth in 2020. The signing of a phase one US-China trade deal in January 2020, has reduced trade related uncertainty. Negative factors include ongoing risks of trade tensions with China or the EU, the negative effects of population ageing on the growth of the labour force, and slow labour productivity growth. The last two factors contribute to a low long-term potential output growth rate of 1.1-2.1 %.
China
The coronavirus outbreak in 2020 complicates the picture, making it more likely for 2020 GDP growth to fall within the lower end of the range above, closer to 5 %. A spread of the virus to other major cities beyond Wuhan could significantly dampen spending on consumer services on things like entertainment and restaurants, as well as cutting tourism and travel spending. Uncertainty around the baseline outlook has also increased and is more skewed to the downside due to the coronavirus outbreak. Purchases from physical stores are likely to be substituted by online purchases, which would stabilise the coronavirus’ effect on retail sales. Consumers are also likely to spend more on durable consumer goods and travel later during the year, rather than going on holidays now. (Source: Euromonitor International Macro Model China Real GDP Growth Forecast) Finally, any signs of a potentially significant decline in China’s 2020 GDP growth are likely to trigger new government fiscal and credit stimulus measures. Nevertheless, Chinese retail sales volume annual growth rate could decline in the first quarter of 2020 from 5–6 % to around 2–3 %.
India
The budget proposals for 2020 indicate that the Indian government will concentrate on supporting economic growth rather than maintaining fiscal discipline. The new budget raises the budget deficit from 3.3 % to 3.8 %. In contrast to other contributors to GDP during the last three quarters of 2019, exports decreased by on average 1.6 % each quarter, due to lower demand, which was affected by trade issues. Government negotiations concerning a free trade deal with the US might, however, restore export growth in Q1 2020.
Japan
Inflation is set to rise to 1 % in 2020 and hover around similar levels in the medium term – remaining well-below the 2 % target of the Bank of Japan (BoJ). The sales tax will help increase the inflation rate from the previous year’s level. However, low inflation expectations continue to dampen any progress achieved by the BoJ. Later in the forecast period, we expect fiscal stimulus effects to die out, which led us to slightly downgrading the forecasts for 2022 and 2023. In the medium term, lack of productivity growth and continued ageing of the country will continue to hinder the economic growth, even if these issues can be temporarily masked with fiscal stimulus.
The Eurozone
GDP growth is expected to decline to 0.8–1.3 % in 2020, improving slightly to 0.8–1.6 % growth in 2021. Domestic demand is expected to grow slightly faster than GDP in 2020, with lower net exports reducing overall GDP growth. Employment growth is expected to decline towards around 0.5 % annually over 2020–2022, compensated by labour productivity growth rising towards 1 %. Long term annual output growth in the 2020s is expected to remain at 0.7–1.6 %, due to an ageing population and slow labour productivity growth.
The UK
The labour market continues to remain strong and support GDP growth amid mounting political uncertainty. Although wage growth is currently higher than productivity growth, this cannot be sustained for long. This inevitably raises doubt around how viable current growth is, which is supported by private consumption. Inflation hovers below the Bank of England’s target level of 2 %. However, the situation is expected to improve if some of the Brexit-related political uncertainty gets resolved. In the most recent January Monetary Policy Committee meeting, the governing board of the Bank of England decided to keep interest rates unchanged even amid disinflationary pressures and slowing economic growth.
Russia
Amid the slowdown in investment, support for economic growth in 2019 was provided by private consumption, which is also expected to help the economy in 2020, given improving household income dynamics, which includes growth in real wages. In our baseline, we expect a minor acceleration in real GDP annual growth to around 1.6–1.7 % over 2020–2021. This acceleration will depend, to a significant extent, on growth in public spending, related to the implementation of national infrastructure projects.
Brazil
Brazil’s Central Bank is still maintaining unprecedented stimulus policies and is maintaining its all-time low interest rates. This is expected to increase business investment and boost industrial output. Also, low interest rates may raise consumer spending on durable goods. With gradual economic recovery, owing largely to a combination of low inflation and low interest rates, real GDP growth forecasts have been upgraded. We expect real GDP to grow by 2.1 % in 2020 and by 2.3 % in 2021.
Summary
The recent phase one US-China trade deal implies a significant reduction in the probability of the All-Out US-China War Scenario, though risks of re-escalating trade tensions remain. The coronavirus outbreak early in 2020 and the risks of a more prolonged impact on China and the global economy have caused an increase in the probabilities assigned to the Global Downturn, Emerging Markets Slowdown, China Hard Landing and Global Crisis Scenarios, despite the lower US-China trade tensions. The UK exited the EU in January 2020 and is currently going through a transition period. However, the strong election victory of the pro-Hard Brexit Conservatives has raised the probability of a No-Deal Brexit at the end of the transition, in Q1 2021.
By Strategic market research provider Euromonitor International, based on facts and figures up to 03/02/2020.
