Global recession odds fall as economy to stabilise in 2020

World economy to expand 2.5% in 2020 and 2.7% in 2021 after weakening in 2019, IHS Markit says

The skyline of the Lujiazui financial district in Shanghai. The US-China trade war is de-escalating as odds of a global recession in 2020 drop to one to five, IHS Markit says. AFP.

The odds of the global economy heading towards a recession next year are lower as growth is expected to stabilise in 2020 after weakening this year, according to projections by IHS Markit.

The world economy is set to stabilise at a rate of 2.5 per cent in 2020 before improving to 2.7 per cent in 2021, according to the annual Top-10 Economic Predictions released by the information provider based in London. The probability of a worldwide recession now stands at one in five despite high levels of policy uncertainties.

"While the global economy seems to have dodged a recession, risks remain daunting,” said Nariman Behravesh, chief economist of IHS Markit. “In the near term, the biggest threat is either an escalation of the US-China trade conflict or the spark of trade conflicts in other regions, notably Europe. Premature repeal of fiscal stimuli is another potential risk to the stabilisation we forecast.”

The run-up to next year's presidential election could provide some policy surprises, both positive and negative, which could affect the outlook

Global economic growth slowed in 2019, sparking fears of an outright recession, with the World Bank and International Monetary Fund painting a gloomy outlook and revising down their growth projections. The slowdown has been globally synchronised as the US-China tariff dispute and increased policy uncertainties hit business confidence and consumer spending.

However, the US and China have tempered their trade war. Earlier this month, Washington and Beijing agreed on the terms of a so-called "phase-one" trade deal that will see the US reducing few tariffs on Chinese imports in exchange for China increasing its purchases of American agricultural, manufactured and energy products.

The easing of the trade conflict between the world's two biggest economies is grounds for optimism for improved global economic growth next year.

“A return to global growth is most likely in the second half of 2020," Mr Behravesh said. "We are watching trade and industrial production in Europe and China for the green shoots of accelerating growth."

The US economy is expected to expand 2.1 per cent in 2020, down from the stimulus-driven average of 2.5 per cent recorded in the years from 2017 to 2019, the report said.

Growth will be supported by factors including the phase-one trade deal with China and strong consumer spending.

However, the US presidential elections could cloud the outlook for US economic growth, IHS Markit warned.

"The run-up to next year’s presidential election could provide some policy surprises, both positive and negative, which could affect the outlook," the report said.

In China, the economy will continue its downward trend, slowing to growth of 6 per cent in 2020 and dropping further in 2021.

"The decade-long deceleration is a result of an aging population and a sharp drop-off in productivity growth, meaning that potential growth in China is lower now than a decade ago and is set to fall further," it said.

IHS Markit forecasts China's growth rate will slide further in 2021 unless the government enacts a more aggressive stimulus programme.

In the UK, the recent election results suggest that while "the worst of the Brexit uncertainty may be over, there is still a hard slog ahead", according to the report.

IHS Markit expects UK's economic growth to drop to 0.5 per cent next year from 1.3 per cent in 2019.

Emerging markets will continue to see "lacklustre" growth in 2020 as the continued decline in the rate of China's expansion means there is less scope for growth in other emerging countries to rise from current rates.

Other concerns such as riots in Latin America and faltering growth in India are also "worrisome" when coupled with the record level of debt in the emerging world, the report said.

IHS Markit expects the average price of dated Brent to drop to $57 in 2020 from $64 per barrel in 2019, as "growing non-Opec production and sluggish liquids demand growth keep the oil market in surplus".

Among other predictions for 2020, IHS Markit forecasts global inflation will remain subdued at 2.7 per cent, the US Federal Reserve may not see the need for further interest rate cuts amid signs of solid economic growth and the US dollar will climb another 3 per cent over the next two years before declining.