World Economic Prospects Monthly

Overview: World growth still seen at just 2.5% in 2020

• ? Although recent developments suggest that the risks of an escalation in US-China trade tensions have eased, we doubt this will deliver a significant boost to the global economy. We still expect world GDP growth of just 2.5% this year, the weakest since the global financial crisis, after an estimated 2.6% in 2019. But the risks around the forecast now seem less skewed to the downside.
• ? While our view remains that global GDP growth is likely to have softened further around the turn of the year, the decline remains gradual. And latest survey-based measures of activity and sentiment show tentative signs that prospects are beginning to improve, consistent with our long-standing view that the low point for global growth will be in Q1 2020.
• ? Just as importantly, the likelihood of the US and China formally signing off a phase one trade deal in mid-January has reduced the chances of a further flare-up in trade tensions between the two economies. However, this has to some degree been offset by the troubling events recently unfolding between the US and Iran.
• ? We remain sceptical that the global economy is set for a major growth boost. Any healing in US-China relations may quickly be unwound and a full reversal of the tariffs already implemented remains a distant prospect. Furthermore, some of the associated growth boost is likely to be offset by less policy support. As a result, we have raised our 2020 GDP growth by just 0.1pp in the US but by a more significant 0.3pp in China.
• ? Meanwhile, although the ongoing and broad-based monetary policy loosening in both AEs and EMs should start to feed through to growth this year, we doubt this will be a game-changer. Not only is policy loosening at a global level set to be fairly muted, limited spare capacity, the rising stock of global debt and elevated asset prices are likely to reduce the positive impulse from policymakers' actions.