Here Is What to Know About Economic Growth 2020.

Global economic experience a low growth especially over the past 2 years due to the trade war of the U.S and China, geopolitical tension and social unrest.

 

Global Economic Growth 2020

Global economic 2020 experience a low growth especially over the past 2 years due to the trade war of the U.S and China, geopolitical tension and social unrest. And over the past 10 years since the economic crisis of 2008, the world economy is already at a low pace. 

Despite the fact, the data of IMF and World Bank shows optimism of global growth in 2020, each expecting respectively 3.4% & 2.7% of the increase.

One of the reasons is the prediction that quantitative easing (increasing money supply) policy will be taken by central banks around the world. The purpose is to boost business sectors and investments. 

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By taking into consideration the role of dollars in the global economy as the global currency reserve (60%), 80% in global payments and almost 100% in oil trade, the Fed policy this year will influence the direction of the global economy amid a tariff war with its trading partners. 

Generally, economic growth 2020 would be influenced by some fundamentals factors as follows. 

 

#1 Trade relation between the US and China 

The positive result of a trade negotiation between the US and China is expected to gain market confidence especially in the manufacturing and agriculture sectors that had a negative effect of a trade war.

 

Early this January, China, and the US closed the first trade deal where China agreed to purchase US$200 billion of American goods and services by 2021 and would reduce some tariffs on American products.

It also agreed to allow more American companies to the Chinese market, increase exports of farm and energy, and protect American technology and trade secrets. 

While Mr. Trump still maintained tariff US$360 billion worth of Chinese goods and threatened to increase more if China didn’t abide by the deal terms. Besides, the US also placed tariffs on Europe’s steel and goods due to the Air-Boeing dispute. It also put tariffs on French goods in response to a controversial French digital tax.

Furthermore, the US seeks a trade deal with the UK this year. This will pose difficulty to the UK in Brexit deal with Europe. 

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All these tariffs tensions between the U.S and its trading partners if not resolved will create a trend of higher tariffs in other countries. Along with that, the positive progress of trade deal with China will support productivity growth in both countries and a stable supply chain. 

With the difficulty of the World Trade Organization to solve trade disputes, and the unilateralist approach of the Trump administration, the tariff war will likely continue followed by trade barriers and protectionism trends, if there are no bilateral deals. 

 

#2 Monetary policy and massive debt

Last year, central banks around the world had tried to stimulate growth by increasing the money supply (quantitative easing). It was a response to the impact of slow economic growth in the last 10 years.  

The trend policy of the Fed this year on the interest rate will affect the domestic growth and supply of dollars globally.

Since the dollar is one of the biggest global reserve currencies, the policy would influence commodity prices such as oil and gold and monetary policy, particularly from its trading partners. 

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The risk of doing competitive devaluation is the increase in global massive debt. Global debt pile from corporates, households, and countries is at a high level. The global debt accumulates over the past 50 years. It has reached 230% of the GDP in 2018 and kept rising (World Bank data). 

Emerging economies debt’, countries that focus more on industrialization rather than the agriculture sector, have risen to 170% of GDP in 2018. With such debt, they are more vulnerable to currency changes, especially dollar and commodities such as oil or food.

It happens because industrialization involving export and import, and more dependent on the global supply chain. 

 

The severe impact of currency devaluation is triggering protection from countries by applying tariffs on imported goods. Sooner or later it will create another currency crisis such as happened in the Great Depression.

In his book, Currency War, James Rickards explained about the war of currency, a financial war using competitive devaluations of the country’s current currency against others.

The purpose is not solemnly economic, it can be for a political reason too that is to cause economic harm to rivals and gain political leverage.

The world has been involved in a currency war since 1921 which started in Germany where marks were destroyed by massive money printing that caused hyperinflation.

The purpose of this was to supply a government that had deficit budget and to funds the cost of repairments of war demanded by English and French in the Treaty of Versailles. This first currency war (CW) ended in 1936.

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The war caused hyperinflation and food prices soaring up. It led to the loss of capital in savings from the people. The second CW was started in 1967 and lasted in 1987, where the US dollar had inflation and declined. The third CW began in 2010 as the consequences of the 2007 financial crisis, where the impact could be seen now in a trade war. 

Rickards argued that in this third war, the actors have broadened to non-national issuers of currency such as the international organization, private parties.

It also involved terrorists, criminal gangs and other bad actors who use SWF (sovereign wealth funds) special forces, intelligence assets, cyberattacks, sabotage, and covert action. 

 

#3 Geopolitical tension

The already tense relations between the US and Iran will give a big impact on how the countries in the Middle East region will respond to the US, particularly Iraq and Syria which receive military support from Iran.

With the US drone that killed the top commander of Iran Qassam Soleimani, the tension might escalate and bring geopolitical unrest in the regions.

Since this is a region that produces oil, the crisis in the Middle East will make oil price surge. The implication of this conflict will slow down economic growth and worsening US relations with trading its partners.

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In Asia, the current upheaval in Hongkong will impact the economic policy of China. Besides, the concern of China’s foreign policy over Taiwan and the South China Sea will affect the geopolitical tension in Asia.

China’s economic growth has fallen to 5.8% compared to recent years. If the territorial conflict escalates, it might affect the big slowdown of China’s economy.

Since major economies are connected to China, it may lead to global growth decline. Another concern in China-US relations is security and technology.

The tension arose from the cybersecurity issue regarding the intellectual property and theft, and espionage from China government through Huawei to the US technology and security.

It caused the US to restrict its companies to trade with Huawei and followed suit by other countries that banned the use of Chinese-made hardware.  

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As a major power, China’s domestic and foreign policy, especially in 2020, could cause significant change to the economic and geopolitical relations between major economies. 

The involvement of the state in its economic activity particularly to ensure its national interest will be greater from the view of the current crisis in economy and geopolitics.

When a state involved in business enterprises whether in state-owned companies or privates, then there is a tendency that the business activity from production to distribution is centrally governed and planned by the government.

With such a picture, the scale and impact of the conflict would be greater and could profoundly affect the global economy. Therefore, investors and people need to be reminded of having the protection of their assets. Allocating more on real assets including gold, land, fine art, and cash. 

 

#4 Social unrest

Mass demonstrations and protests in Latin America, Europe, Asia, North Africa, and the Middle East last year will continue to impact the global economic slowdown. The protest was driven mostly by issues such as corruption, authoritarian government, economic inequality, and climate change.

This has caused social economic and political instability in the countries. The impact could triggered a more authoritarian and populist regime to reign again.

The outcome will likely be the low productivity and investment since a more centralized and planned economy where the state has more domination in economic and business sectors occur, with more restricted economic policies. 

 

#5 Environment and health factors

Downturn prediction of the global economy is accompanied by several environmental and health issues. Continual climate change which followed by in recent years wildfires in California, India, Amazon, and Australia, would increase global pollution and caused a continual climate crisis.

So far pollution kills 9 million people each year in poor countries. Data of World Bank Group estimated the cost of health damage from air pollution as US$5.7 trillion or 4.8% of global GDP in 2016. This crisis also posed a vulnerability in food security particularly to lower-income countries. 

 

Currently, the market was shocked over the outbreak of Coronavirus in China which has confirmed more than 800 cases of infection. The outbreak followed by the decline of prices in stock and crude oil, while gold went up for the fear of disruption in travel and trade will lag economic growth.

As we can see, the impact of environmental and health crisis also influence global growth, especially in emerging and developing economies.

 

Conclusion of Economic Growth 2020

Global growth has declined since 2010 partly as the impact of the economic crisis in 2008. The economic outlook shows that in 2020 there will likely a downturn.

The major factors that will likely to contribute to the event namely global trade, monetary policy, geopolitical tension, social unrest, and environmental and health sectors.

To face this economic growth 2020, we should prepare our self with a good economic and financial plan. So then, manage your monthly budget with Finansialku application. Download Finansialku application on Google Play Store or Apple App Store now.

 

From this outlook, it is suggested for investors, entrepreneurs, business actors, and non-business parties to allocate their money in real assets such as gold, land, cash, or fine arts to protect their wealth from inflation and economic recession. 

If you find this article helpful, please share with other people who need this information to help manage their asset.

 

References:

  • Keith Johnson. December 31st, 2019. The Global Economy 2020: A Positive Outlook Shadowed By China, Debt, And Trade Tension. Foreignpolicy.com – https://bit.ly/2PXxwI1
  • Admin. Economic Outlook, January 2020: Tentative Stabilization, Sluggish Recovery?. Imf.org – https://bit.ly/3ayuuSr
  • Kimberly Amadeo. December 14th, 2019. Emerging Market Countries And Their Five Defining Characteristics. Thebalance.com – https://bit.ly/336b4C0
  • Keith Johnson. December 9th, 2019. How Trump May Finally Kill The WTO. Foreignpolicy.com – https://bit.ly/331nOcN
  • Ana Swanson and Alan Rappeport. January 15th, 2020. Trump Signs China Trade Deal, Putting Economic Conflict on Pause. Nytimes.com – https://bit.ly/38tWWTV
  • James Rickards. January 23th, 2020. Don’t Mess With The US (Financially). Dailyreckoning.com – https://bit.ly/3cHdY4g
  • Admin. Environment. Thinkglobalhealth.org – https://bit.ly/2TJoUG0
  • James Rickards. 2011. Currency Wars: The Making Of The Next Global Crisis. New York: Penguin Group.
  • James Rickards. 2014. The Death O