Macroeconomic Outlook 2020: Fragile 20/20 vision

In this 2020 outlook we discuss our macroeconomic forecasts for the coming couple of years


Eurozone - If only countries could give themselves a leg up

Key points

  • Euro area growth should continue to slow in 2020, falling to 0.7% from 1.2% year-on-year, as spillovers to the broader economy outweigh any globally- driven improvement in manufacturing and trade.
  • The European Central Bank has reached its limits and its main challenge will be to keep face while doing nothing. We expect an unchanged deposit interest rate throughout 2020.
  • Some much-awaited fiscal easing should help in 2021, but progress on euro area integration - fiscal mutualisation, banking union - are likely to be scarce.

U.S. - Dropping below stall speed

Key points

  • Uncertainty over trade policy and the 2020 Presidential Elections are key unknowns in determining the US outlook for the coming years.
  • On balance, economic headwinds look set to dominate tailwinds. We forecast growth slowing to 1.6% in 2020 and slowing further to 0.8% in 2021.
  • Further slowing in 2021 risks the economy falling into ‘stall speed’. The Federal Reserve should begin to ease policy in Q4 2020 as it anticipates this outcome.

China – Entering sub-6% growth amidst trade truce

Key points

  • A structural slowdown will take the Chinese economy into a new chapter of sub-6% growth, starting in 2020
  • But the economy may be near a cyclical trough and its subsequent recovery could be helped by a trade truce
  • Prudent policy easing will continue to function as an auto-stabiliser should the labour market stay resilient


Japan – The land of the rising sun… and falling growth

Key points

  • Japan is likely to face an economic downturn in 2020, impacted by both sluggish external demand and negative pressure from this year’s sales tax hike. Modest fiscal easing could reduce downside risks.
  • In 2021, a slight rebound in domestic demand is expected, but could be affected by likely further deceleration in the US and China.
  • Overall, GDP growth is likely to fall to 0.1% in 2020 and recover in 2021 to 0.8%. 


UK – Life after Brexit

Key points

  • The General Election on 12 December will determine the path of Brexit. We expect a small Conservative majority, which will deliver Brexit on 31 January 2020.
  • Growth in 2020 will reflect a trade-off between economic uncertainties and degrees of fiscal easing in a range of scenarios. We expect GDP growth of 1.2%.
  • By 2021, UK growth should re-engage with global trends. There is a risk this will come at a time of renewed global softening, dashing hopes for a post-


Emerging Markets

Key points

  • Growth has been weak in 2019, hurt by the US/China trade war and a series of idiosyncratic issues for countries such as India, Brazil, Mexico, Argentina and South Africa. We expect some rebound in 2020.
  • Policy has generally turned more proactive. Fiscal policy has eased, and street protests could spur additional public spending even in more fiscally constrained economies. Central banks have also eased policy.
  • The path of the US economy and dollar, developments in the trade war and shifts in Chinese stimulus will dominate developing countries’ growth profiles, currencies and financial markets performance.