Global 2020 Macro Scenario
Global activity is suffering from the trade war. International trade contracted by - 2.7% between October 2018 and September 2019, only the third time that we have observed such a contraction in the past 20 years.
The prospect of a trade truce has recently boosted business sentiment. The rebound in the World Purchasing Managers Index (PMI) for manufacturing d in August put an end to the longest deterioration in sentiment on record (18 months of contraction out of 19 between December 2017 and July 2019). However, the latest PMI reading still points toward zero growth in global manufacturing activity. We will need lasting improvement in the PMI index above the 50 mark that separates contraction from expansion for a clear signal of future growth in manufacturing activity.
While the latest PMI showed a rebound almost everywhere, many regions are still deeply entrenched in contraction territory, particularly open manufacturing-heavy economies like Germany and Japan.
All in all, the improvement in business sentiment is encouraging but, at this stage, is just signalling an end to a long drawn-out deterioration. Good news on the trade front is now necessary if we are to see a sustained recovery, notably a reversal of past tariff increases.
In 2020, global economic activity could continue to suffer from trade disputes. Past tariff increases are likely to weigh on international trade, industrial production and fixed investment. As a result, we expect that world real GDP growth will remain subdued in 2020, coming in at 2.9% compared with 3.0% in 2019. A marked slowdown in advanced economies (1.0% compared to 1.7%) should be partially compensated by a progressive recovery in growth in emerging economies.
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