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2020 Global Outlook: Testing limits

Growth edges up

We stick to our view that global growth will edge higher in 2020 thanks to easy financial conditions, limiting recession risks. The growth mix should eventually shift as manufacturing recovers from coronavirus disruptions. We already see interest rate-sensitive sectors such as housing strengthening. But the broader growth pickup may be delayed, with the virus impact likely concentrated in the first half.

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.

Easy financial conditions are translating into growth pickup
BlackRock G3 FCI and Growth GPS, 2010-2020

BlackRock G3 FCI and Growth GPS, 2010-2020
  • Source

    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 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 chart above 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 expect this gap to gradually close.
  • We believe the U.S. and China have strong incentives to hit pause on their trade conflict after agreeing to a limited “phase one” trade deal, though structural rivalries remain, especially in the technology arena. Also, the U.S. has adopted a revised North American trade pact. Both steps should allow global trading activity some breathing space, but U.S. protectionist measures could shift to Europe. We see greater uncertainty about China’s economic outlook – and the potential policy response – due to the coronavirus outbreak. As of now, we expect a limited global impact – but we are on the lookout for evidence of supply chain disruptions.

Bottom line: We expect a modest global growth pickup in 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
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
Head of Macro Research, BlackRock Investment Institute
Elga Bartsch, PhD, Managing Director, heads up economic and markets research at the Blackrock Investment Institute (BII). BII provides connectivity between BlackRock's ...
Mike Pyle
Chief Investment Strategist, BlackRock Investment Institute
Mike Pyle, CFA, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy function within the BlackRock Investment Institute ...
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 responsible for developing ...