2020 Global Outlook: Testing limits

Growth downshift

  • Sources: BlackRock Investment Institute, Consensus Economics and Reuters polls, February 2020. 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 grey area shows 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 level of economic activity is likely to step down for the full year as the outbreak is becoming an increasingly global public health threat, we believe. Disruptions are already spreading across continents – and may further decelerate economic activity. This undermines the growth uptick we were expecting in 2020. At the outset of the year, our growth GPS (yellow line) was turning higher – and poised to start closing the gap with where we would expect growth estimates implied by financial conditions to be (orange line).
  • We see the drag on economic activity from the coronavirus outbreak and related containment measures threatening to push some developed economies – such as Japan and the euro area – toward the brink of a technical recession (defined as two consecutive quarters of economic contraction), even though we don’t foresee a recession in the U.S. or globally.
  • We expect a recovery in activity once disruptions dissipate, but the depth and duration of the trough are highly uncertain. These unknowns could weigh on consumption and investment. The main risk to our view: a broadening of the outbreak triggers a premature end to the cycle.
  • The macro impact so far – within China and beyond – is primarily driven by China’s extensive containment measures. Yet the spread of the outbreak to other regions threatens to broaden the economic fallout.
  • Our macro regime work puts the U.S. business cycle in a slowdown regime – but we could see supply chain disruptions trigger a market-unfriendly regime of slowing growth and rising inflation over time.

Bottom line: We see a downshift in growth in 2020, with considerable uncertainty around the impact of the coronavirus outbreak. This makes us more cautious on risk assets.

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
Jean Boivin
Head of BlackRock Investment Institute
Jean Boivin, PhD, Managing Director, is the Head of the BlackRock Investment Institute (BII). The institute leverages BlackRock’s expertise and produces proprietary ...
Elga Bartsch
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
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 ...