2020 Outlook: Getting back on track

We believe the current US business cycle will likely continue in 2020 and beyond.

In 2019, the uncertainty of the U.S.-China trade wars and the lagged effects of the US Federal Reserve's interest rate hikes had combined to erode business investment and grind economic growth to a near halt. Many pundits insisted a recession was looming.

In our view, though, the big global macro stories have not changed. It is still a slow-growth, benign-inflation environment. From a macroeconomic perspective, we expect:

  1. The slow growth cycle will continue in 2020.
  2. Accommodative monetary policy globally will help support growth and sustain the expansion.
  3. The US-China trade war will incrementally improve, boosting sentiment.
  4. A modestly stronger US and an upswing in China will drive growth during the year.

Fears that growth will be hindered are dissipating

The global economy is reemerging from the third growth scare of this cycle, as evidenced by the rise in the percentage of world economies growing above their long-term averages. All three of these scares were driven by fears of policy mistakes. Figure 1 Today, better news on trade and a more accommodative stance from the Fed should boost confidence in the durability of the current upswing.

Figure 1:
Percent of countries growing abvoe their long-term average

Easier financial conditions should support risk assets

Current financial conditions — which encompass the state of the US dollar, equities, credit spreads and interest rates — demonstrate the support monetary policy authorities are providing to the economy. Figure 2 We believe these conditions should help drive growth and deliver positive returns for risk assets in 2020.

Figure 2:
Goldman Sachs Financial Conditions Index

Important information

The Economic Policy Uncertainty Index is compiled from three underlying components that quantify newspaper coverage of policy-related economic uncertainty, reflect the number of federal tax code provisions set to expire in future years, and use disagreement among economic forecasters as a proxy for uncertainty.

The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. There is no guarantee the outlooks mentioned will come to pass.

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