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2020 Global Outlook: Testing limits

Growth edges up

We see an inflection point in global economic growth as easier financial conditions start filtering through. The growth mix is shifting as the modest pickup is likely to be led by manufacturing, business spending and interest rate-sensitive sectors such as housing.

Implication: We maintain a moderate pro-risk stance and see potential for cyclical assets such as Japanese and emerging market (EM) assets to outperform tactically.

Growth disconnect
BlackRock G3 FCI and Growth GPS, 2010-2020

Growth disconnect
  • Source

    BlackRock Investment Institute and Consensus Economics, November 2019. Notes: The Growth GPS shows where consensus GDP forecast may stand in three months’ time, shifted forward by three months. The orange line shows the rate of GDP growth implied by our financial conditions indicator (FCI), based on its historical relationship with our Growth GPS, shifted forward by six months. The shaded areas show annualized actual growth rates on a quarterly basis; values after Sept 30, 2019 are consensus estimates. The FCI inputs include policy rates, bond yields, corporate bond spreads, equity market valuations and exchange rates. Forward-looking estimates may not come to pass.

  • The unusual late-cycle, dovish pivot by central banks has led to a dramatic easing in financial conditions. The impact of such easing on the real economy typically comes with a lag — but has been particularly delayed this time due to the protectionist push. This is illustrated by the
    Growth disconnect chart in the gap between our Growth GPS (yellow line) and where we would expect growth estimates implied by financial conditions to be (orange line).
  • We believe the incentives for the U.S. and China to hit pause on their trade conflict are strong in 2020, although there could be turbulence along the way. Trade pressures moving sideways should allow global trade activity some breathing space.
  • We also see a shift in the mix of global growth. The uptick is likely to be led by the manufacturing sector (notably cars, capital goods and semi-conductors), as well as interest rate-sensitive sectors such as housing and, to a lesser extent, business investment.

Bottom line: We expect a modest global growth pickup in the first half of 2020. This limits recession risk and is a favorable backdrop for risk assets, in our view.

Meet the authors
Philipp Hildebrand
Vice Chairman
Philipp Hildebrand, Vice Chairman of BlackRock, is a member of the firm's Global Executive Committee. He is also Chairman of the Financial Markets Advisory (FMA
Jean Boivin, PhD
Managing Director, Global Head of Research for the Blackrock Investment Institute
Jean Boivin, PhD, Managing Director, is Global Head of Research for the Blackrock Investment Institute and is a member of the EMEA Executive Committee. His team is ...
Elga Bartsch
Managing Director, Head of Macro Research of the BlackRock Investment Institute
Elga Bartsch, Managing Director, is Head of Macro Research of the BlackRock Investment Institute. Elga heads up economic and markets research of the Blackrock Investment ...
Mike Pyle
Chief Investment Strategist, BlackRock Investment Institute
Scott Thiel
Chief Fixed Income Strategist
Scott Thiel, Managing Director, is Chief Fixed Income Strategist for BlackRock and a member of the BlackRock Investment Institute (BII). He is responsible for developing ...