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Testing our global outlook

Key points

Our view
We see global growth edging higher in 2020, though the coronavirus outbreak has added uncertainties around the timing of the pickup.
Growth outlook
We retain our moderate pro-risk investment stance over the next six to 12 months, yet the pathway could involve greater volatility.
Souring expectations
This week’s flash purchasing managers’ index (PMI) data could show a temporary softening in manufacturing activity, reversing recent gains.

The February update to our Global Outlook reaffirms our expectation for global growth to edge higher this year, even as the coronavirus outbreak has introduced uncertainties. Past epidemics have seen V-shaped economic recoveries – a pattern we expect see this time as well. Yet the depth and width of the “V” are highly uncertain. This outbreak could be more disruptive than past ones because it could be more severe, and because of greater reliance on global supply chains.

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Chart of the week
BlackRock Growth GPS for developed market economies, 2016-2020

BlackRock Growth GPS for developed market economies, 2016-2020


Sources: BlackRock Investment Institute, with data from Consensus Economics, February 2020. Notes: The Growth GPS shows where consensus GDP forecast may stand in three months’ time, shifted forward by three months. Forward-looking estimates may not come to pass.

Growth prospects have started to improve in key developed economies since late 2019. Our BlackRock Growth GPS, which aims to give a read of where consensus forecasts of real economic growth may stand in three months’ time, has shown an inflection in growth expectations for the U.S., the euro area, Japan and the UK. See the chart above. Growth momentum was also starting to recover in emerging markets (EM) late last year. Yet the coronavirus outbreak has emerged as a principal risk to our global growth outlook. Economic growth and markets have historically responded with a V-shaped pattern to temporary disruptions caused by past epidemics, with the recovery in economic activity often fueled by the pent-up demand in retail and a restart of manufacturing sector. Yet key uncertainties around this outbreak may make history an unreliable guide. It is still too soon to gauge the magnitude and duration of this outbreak as well as its overall impact on the global economy.

The short-term impact from the coronavirus outbreak – thus far mostly stemming from China’s containment measures – will likely play out in coming quarters. Based on what we now know, we see it delaying, but not derailing, a growth uptick that should take root this year. China’s central bank has already started to ease policy, and we are likely to see more support from Chinese authorities to shore up growth, yet an ongoing desire to rein in financial excesses leaves open the size and shape of the stimulus. Another key development to watch: How extensively will the outbreak spread beyond China?

The coronavirus outbreak may also pose medium-term risks. Potential disruptions to global value chains could drive up prices – and push companies that suffer from such disruptions to build up higher stockpiles and start to rethink prevalent just-in-time inventory management systems. This adds to the potential disruptions to global supply chains from trade protectionism. Over time, such supply shocks could lead to a change in the macro regime. One possibility: Growth slows and inflation rises. This might pressure the negative correlation between stock and bond returns over time, reducing the diversification properties of government bonds.

Our base case for the global economy in 2020 is still for a modest pickup in growth, with a slight rise in U.S. inflation pressures. This in turn limits recession risks. Financial vulnerabilities are climbing, but our overall gauge of vulnerabilities across the economy stands well short of its peaks ahead of the last recession. We still view this as a favorable backdrop for risk assets over a 6-12 months horizon, even considering the impact from the coronavirus outbreak.  Yet many uncertainties around its severity, as well as potential economic and market impacts could make the path forward uneven. Over the same time horizon we still see potential for a bounce in cyclical assets, such as Japanese and EM equities, as well as EM debt and high yield. We see a neutral stance on U.S. equities as appropriate as growth recovers and uncertainties around the 2020 U.S. election intensify – despite their recent outperformance. We are underweight European equities and see greater upside in cyclical exposures elsewhere. We prefer short-term U.S. Treasuries on a tactical basis and like both long-term Treasuries and Treasury Inflation-Protected Securities (TIPS) as sources of resilience against potential regime shifts in strategic allocations, even as the recent rally in real rates has made an entry point less attractive now.

Assets in review
Selected asset performance in the past 12 months

Selected asset performance in the past 12 months


Past performance is not a reliable indicator of current or future results.It is not possible to  invest directly in an index.
Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, February 2020. Notes: The two ends of the bars show the lowest and highest returns over the last 12 months, and the dots represent returns compared to 12 months earlier. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, MSCI USA Index, the ICE U.S. Dollar Index (DXY), MSCI Europe Index, Bank of America Merrill Lynch Global Broad Corporate Index, Bank of America Merrill Lynch Global High Yield Index, Datastream 10-year benchmark government bond (U.S. , German and Italy), MSCI Emerging Markets Index, spot gold and J.P. Morgan EMBI index.

Market backdrop

Positive corporate earnings have limited equity losses triggered by worries about the coronavirus outbreak emanating from China and its potential economic impact. Moderating trade tensions and still accommodative financial conditions are supportive of growth. The lack of a clear leading U.S. Democratic presidential candidate underscores rising political uncertainty. We are likely to see renewed weakness in global manufacturing due to the virus’ impact. We are monitoring the duration and severity of the outbreak, as well as the rise of cases outside China. We believe there may be a misalignment between the market’s current assessment of the outbreak’s impact and shorter-term risks around its geographic spread.

Week ahead

Feb. 18 – German ZEW economic sentiment and U.S. Empire State Manufacturing Survey
Feb. 19 – U.S. housing starts; UK inflation
Feb. 20 – UK retail sales and euro area Consumer Confidence Indicator
Feb. 21 – Flash composite PMI for the euro area, Japan and the U.S.; South Korea trade data for the first 20 days of February

This week’s flash PMI data for a few key economies may show some temporary softening, especially in the manufacturing component. This would reverse the modest improvement prior to the coronavirus outbreak that we saw in January’s data. South Korea’s closely-watched trade data could offer a glimpse of the latest global trade dynamics.

Directional views
Six to 12-month tactical views on major global assets from a U.S. dollar perspective, February 2020

Directional View

Note: This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Granular views
Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, February 2020

Granular View

Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Read details about our investment themes and more in our 2020 Global outlook.

Growth edges up


We stick to our view that global growth will edge higher thanks to easier financial conditions, limiting recession risks.

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    • The growth mix should eventually shift as manufacturing recovers from coronavirus disruptions. We already see firming in interest rate-sensitive sectors, such as housing.
    • The U.S. and China have strong incentives to maintain the pause on their trade conflict after agreeing to a limited “phase 1” trade deal, though there may be more turbulence. The U.S. adopted a revised North American trade pact. Both steps should allow global trading activity some breathing space, but U.S. trade measures could shift to Europe.
    • We see greater uncertainty about China’s economic outlook – and prospects for stimulus – due to the coronavirus outbreak. The macro impact thus far is primarily driven by China’s aggressive containment measures.
    • Our macro regime work puts the business cycle in a slowdown regime – but we could see a shift to a risk asset-friendly goldilocks regime or a market-unfriendly mild stagflation regime.
    • Market implication: We maintain a moderate pro-risk stance and see potential for cyclical assets such as Japanese and EM assets to outperform tactically.
Policy pause


We see economic fundamentals driving markets in 2020, and less scope for monetary easing and other policy surprises. The lagged effect of monetary policy easing is starting to filter through to economic activity.

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    • The Federal Reserve has reaffirmed that the bar for further policy easing is high. We believe there is too much focus on the Fed’s balance sheet whose role now is primarily about keeping the fed funds rate on target.
    • China has eased monetary policy as a first response to cushion the drag from the coronavirus outbreak.
    • The policy debate is set to zoom in on a potential shift from monetary to fiscal stimulus. Any fiscal support in 2020 is likely to come from outside the U.S.: notably in Japan, as well as EM ex-China. We see greater focus on the role fiscal policy might play depending on the outcome of the U.S. election.
    • The UK signaled a potential shift toward greater fiscal spending. A costly high-speed train line was approved, and a change of chancellor of the exchequer suggests a coming relaxation of the country’s fiscal rules to limit deficits.
    • Our base case is for little chance of meaningful global fiscal stimulus. Yet we acknowledge the UK government could spend more and the coronavirus outbreak could push China into greater stimulus than initially anticipated. Importantly, modest shifts toward fiscal easing may have outsized market impact.
    • Market implication: Income streams are crucial in a slow-growth, low-rate world. We like EM and high yield debt.
thinking resilience


Our preference for U.S. Treasuries and Treasury Inflation-Protected Securities as portfolio ballast worked during the recent virus-related equity volatility. The moves also confirmed that some developed market government bonds, such as German bunds, work less well as diversifiers with yields near levels we consider to be their lower bounds.

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    • A focus on sustainability can help make portfolios more resilient. A commonly held view is that sustainable investing requires giving up potential returns – we don’t think that’s true.
    • A weakening or breakdown of the negative correlation between returns of stocks and bonds could also undermine the portfolio ballast role of government bonds.
    • Geopolitical tensions remain high in the Middle East, and we believe markets are underestimating cyber risks ahead of the U.S. election. See our geopolitical risk dashboard.
    • Market implication: We prefer U.S. Treasuries to lower-yielding peers as portfolio ballast and see a strong case for integrating sustainability into investment processes.
Mike Pyle
Global Chief Investment Strategist
Mike Pyle, CFA, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy function within the BlackRock Investment
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 ...
Scott Thiel
Chief Fixed Income Strategist, BlackRock Investment Institute
Scott Thiel, Managing Director, is Chief Fixed Income Strategist for BlackRock and a member of the BlackRock Investment Institute (BII). He is ...

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