2020 is shaping up as yet another important year in the current bull market run. Whether it’s the threat to slowing global growth, all-important elections, central bank policy or the rise of environmental and social issues – namely climate change – the next 12 months look to be busy both here and abroad. Here are five things our team is looking at the start of 2020:
1. Modest bounce in global growth
It’s been more than ten years since the last recession and as the global economy continues to grow at a moderate rate – the International Monetary Fund estimates the global economy grew at 3% in 2019. Following the China and US trade conflict of 2019, we believe it’s unlikely they’ll strike a comprehensive trade deal, which if true, will continue to hinder global growth.
In 2020 central banks are projected to remain accommodative, and when monetary policy is exhausted, fiscal stimulus is looking increasingly likely. A number of countries including New Zealand, the UK and Japan, intend to increase government spending – and there’s pressure for other countries to do more. Popular targets include improving infrastructure, tackling climate change and reducing inequality.
2. Interest rates to remain low
This time last year some central banks, including the US Federal Reserve, were hiking interest rates. Fast forward 12 months, and the tables have turned. A rise in geopolitical uncertainty and lacklustre growth led to central banks cutting rates.
Interest rates are now near or at neutral levels, and we see the prospect of future rate cuts in 2020 slowing, if not ending. However, central banks will remain accommodative to support global economies.
Regionally, we see Australia most likely to cut rates, exacerbated by terrible natural disasters. In New Zealand, the prospect of further cuts has fallen following a bounce in business confidence and the government’s recent NZ$12 billion infrastructure investment announcement.
3. Geopolitical risks to keep market volatility elevated
Rising geopolitical unrest across the globe continues to be a strong theme heading into 2020.
Hong Kong pro-democracy protests plunged the local economy into recession in 2019. Should the US get embroiled further in the conflict, we see this weighing on trade relations with China.
Another substantial geopolitical risk out of Europe, at least from an economic perspective, is Brexit. After the Conservative Party and Boris Johnson’s victory in December 2019, the break-up from the EU could happen by end of January 2020. This will not end economic and political uncertainty, with trade deals and negotiations set to complicate matters. Given this, we expect ongoing volatility in UK assets as it navigates its way to a smooth exit from the EU.