2020 Midyear Global Outlook
2020 Midyear Global Outlook

The future is running at us

The coronavirus shock is accelerating structural trends in inequality, globalization, macro policy and sustainability. This is fundamentally reshaping the investment landscape and will be key to investor outcomes.
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The future is now

The public health and ensuing economic crises are exacerbating entrenched forms of inequality across income levels, ethnicity and countries. Many emerging markets (EMs) are facing health, policy and deglobalization challenges. The pandemic has exposed vulnerabilities of global supply chains and added impetus to geopolitical fragmentation. It has led to a policy revolution that blurs the boundaries between fiscal and monetary action – which could address some of the rising inequalities. And it has put a premium on sustainability, corporate responsibility and resilience of companies, sectors and countries.

Investors grapple with these issues today. The focus of our virtual Midyear Outlook Forum in early June was decisively on longer-term trends as a result: inequality, globalization, macro policy and sustainability. Market sentiment has been driven by the pandemic’s near-term evolution and the policy response, but these four structural shifts are transforming the investment landscape and will be significant to investor outcomes.

The world has changed, leading us to a completely new macro framework and major view changes. Our revamped 2020 investment themes reflect this, and now include strategic, or long-term, implications.

Our 2020 investment themes

Activity restart
Economies are slowly restarting, but at different paces. The longer it takes for activity to restart, the more cracks might appear in the financial system.
Policy revolution
Policymakers cushioned the devastating and deflationary impact of the virus shock. But the necessary policy revolution could bring inflation in the medium term.
Real resilience
Supercharged structural trends are set to change the nature of portfolio diversification, with country and regional exposures playing a larger role.

The most important action investors need to take today, in our view, is to review their strategic asset allocation to ensure portfolios are resilient to these supercharged trends. What is needed is a reassessment of the whole portfolio, not just a tweaking at the edges. We emphasize three strategic calls.

First, central banks have committed to keep rates low, enabling an unprecedented fiscal expansion. Combined with the risk of supply shocks, this raises the potential for higher inflation in the medium term and challenges the role of nominal government bonds as ballast over a strategic horizon. Second, deglobalization and fragmentation call for a focus on real resilience: deliberate diversification across sectors and countries that are positioned well for these trends. Third, the pandemic has accelerated a tectonic shift toward sustainability.

The initial Covid-19 contraction is larger than the great financial crisis, but we believe its cumulative impact on the economy will likely to be much less if the policy response remains strong enough to cushion the blow.

Normal business cycle dynamics do not apply, so we track three signposts: 1) how successful economies are at restarting activity while controlling the virus spread; 2) whether stimulus is still sufficient and reaching households and businesses; and 3) whether any signs of financial vulnerabilities or permanent scarring of productive capacity are emerging. Markets are laser-focused on changes in any of these three “known unknowns.” The longer it takes for activity to restart, the more cracks might appear in the financial system and productive capacity.

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Midyear Outlook Forum
Our portfolio managers debate four key structural trends and their implications for financial markets.
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Midyear Outlook Forum
Midyear Outlook in charts
We track the latest data and trends to inform our outlook views.
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Midyear Outlook in charts
Meet the authors
Philipp Hildebrand
Vice Chairman
Jean Boivin
Head of BlackRock Investment Institute
Mike Pyle
Chief Investment Strategist, BlackRock Investment Institute
Elga Bartsch
Head of Macro Research
Scott Thiel
Chief Fixed Income Strategist, BlackRock Investment Institute