BBVA Research | After slowing its pace in 2019, global growth is likely to remain at 3.2% in 2020 and to gradually accelerate to around 3.3% in 2021. While the strategic rivalry between the US and China will continue to generate tensions, and other regions may be affected by new protectionist measures, global uncertainty is expected to remain lower than in 2019, enabling the global slowdown process to end. These growth forecasts are also dependent upon keeping geopolitical tensions in check, in addition to other risks threatening the world economy. Specifically, the BBVA Research scenario assumes that recent tensions between the US, Iran, and Iraq will have no permanent negative impact on the global environment. In particular, oil prices are expected to stabilize at about USD 61 per barrel over the next two years, below the average value recorded in 2019 (USD 64) or the current price (USD 68). This expected reduction in crude oil prices is based on a gradual improvement in global demand and a forecast increase in supply from non-OPEC countries. Should an escalation of instability in the Middle East drive oil prices up to USD 70 a barrel and keep them at these levels throughout 2020, global growth over the next biennium could be undermined by between one and two tenths, with Europe suffering the greatest impact.
The prospects for stabilization are likewise backed by the view that economic policy will continue to support activity in most regions. Specifically, in a setting of limited inflationary pressures, both the Federal Reserve and the ECB are expected to maintain current rates throughout 2020 and 2021, although additional stimulus measures cannot be not ruled out in either case in the event of further decline of the outlook, nor are rate hikes out of the question in the US if inflation rises more than expected. Furthermore, fiscal policy will act as a stimulus in the Eurozone and, primarily, in China, where there will be more public investment in infrastructure than expected three months ago. This will be compounded by the Chinese central bank’s monetary expansion measures, although they will be limited by the recent rebound, largely temporary, in inflation. Thus, official interest rates are forecast to drop in the coming months, from 4.1% to 3.9% and bank reserve requirements are expected to fall again.
In the US, prospects remain for a slight slowdown toward near-potential growth rates: after 2.9% growth in 2018, the economy grew 2.3% in 2019 and will expand by about 1.8% in 2020 and 2.0% in 2021 (see Figure 2.2).
Thus, the growth cycle that began in 2010 will continue, in a setting in which political up heaval could increase with the November 2020 presidential elections, despite the risk of recession, which, at any rate, has shrunk in recent months.
In China, the economy will continue to slow down moving forward, but at a more pace than previously expected. Specifically, forecasts point to a growth rate of around 5.8% in 2020, three tenths lower than in 2019, and 5.5% in 2021. The improvement in the forecast for 2019 (+0.1pp) is due to the fact that growth slowed somewhat less than expected in recent months, while the adjustment of the 2020 forecast (+0.2pp) was prompted by the agreement with the US and the improved outlook for the future relationship between the two economies, as well as the decision to intensify the use of fiscal policy as a stimulus tool for activity. In any case, the risks associated with a disorderly deleveraging of the economy continue to exist.
Growth forecasts for 2019 and 2020 have been revised slightly in the Eurozone. After ending 2019 with a 1.2% (+0.1pp) increase, growth is expected to reach 0.9% (+0.1pp) in 2020 and 1.2% in 2021. The positive surprises in activity indicators in recent months, as well as the eliminated risk of a no-deal Brexit at the end of January, have contributed to the upward revisions, although this risk could increase in late 2020.