Navigating Choppy Waters: 2020 Global & US Economic Outlook... · Oren Klachkin LeadEconomist...

January 2020

Navigating Choppy Waters: 2020 Global & US Economic Outlook

Oren KlachkinLead Economistoklachkin@oxfordeconomics.com

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Global economy stays in low gear

Global economy will grow 2.5% in 2020

Stalled trade growth and weak investment

-20

-15

-10

-5

0

5

10

15

20

2004 2006 2008 2010 2012 2014 2016 2018

CPB world trade

Coincident indicator (smoothed)

Leading indicator (smoothed)

World trade and world trade indicators% year 3mma (volume)

Source : Oxford Economics/Nederland CPB

Solid employment trends keep consumers spending

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

-4

-3

-2

-1

0

1

2

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Surveys of employment intentions* (LHS, adv. 6 months)Employment (RHS)

Advanced economies: Employment

Source : Oxford Economics/Haver Analytics

Index % year

* Weighted average of US, Eurozone and UK surveys

25% probability of a global recession

US will be a sub-2% economy in 2020

Longest US expansion on record

Stalled business investment & weaker consumer spending

9

-6

-4

-2

0

2

4

6

00 02 04 06 08 10 12 14 16 18 2020

ConsumptionNonresidential InvestmentResidential InvestmentInventoriesNet ExportsGovernment SpendingReal GDP

Source : Oxford Economics/Haver Analytics

Real GDP Growth Contribution%

Forecast

Consumers doing heavy lifting

Labor market still strong, but poised to moderate

• 111 consecutive months of expansion!• Wage growth slipped to 2.9% y/y in December 2019 – weakest since July 2018• ECI for private wages and salaries held at 2.8% y/y in Q3, near cycle highs

Dec 2019

145,000

184,000

176,000

12

Cooler income growth will lead to softer spending

Corporate profit margins continue to be squeezed

Business confidence has softened

14

Strong dollar will remain a constraint in 2020

15

Core business orders and shipments remain weak

Low inflation will prompt one more Fed rate cut in 2020

Recession risks are low

An update on trade tensions

Tariffs on the rise

Trade policy uncertainty remains high

Don’t call it NAFTA, even if USMCA looks like it

The intrinsic importance of the deal is not what it does to modernize NAFTA, but rather what it prevents: a potentially-disastrous breakdown of trade between the US and its most important trading partners

Still-high trade tensions boost recession odds

23

Global recession odds have declined but we expect an extended period of uncertainty, depressing growth, low interest rates and weak investment.

We forecast US GDP growth will moderate to 1.7% in 2020 following an estimated 2.3% advance in 2019.

Cooler employment trends should lead to a gentle glide in disposable income growth and consumer spending. But elevated personal savings, low interest rates, moderate inflation and healthy confidence levels should prevent a hard landing.

Weaker global growth, persistent trade tensions, lingering policy uncertainty and subdued corporate profitability will continue to act as a powerful brake on business investment in the coming quarters.

After three Fed rate cuts in July, September, and October 2019, we expect one more 25bp rate cut in June 2020.

THANK YOU!

Oren KlachkinLead Economistoklachkin@oxfordeconomics.com

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