This website uses cookies.
Cookies improve the user experience. You can change the cookies acceptance settings for this website.

News

Economic Study 1/13/2020

Economic outlook - 20 questions about 2020

Cavalier_Bruno_2.png
Bruno Cavalier
Chief Economist at ODDO BHF

Since 2018, world economic growth has been dragged down by the downturn in the manufacturing sector against the backdrop of a “trade war”. For a large part of 2019, the question that most preoccupied investors and economists was whether the US and, with it, the rest of the world, would fall back into recession. Over the summer, these concerns almost entered irrational territory. As we enter 2020, general sentiment is calmer and more in tune today with the real economy, whose situation is far from catastrophic. In this note, we will examine in the form of a Q&A the key questions likely to shape the economic outlook.

  • To sum up all the events that marked 2019, it could be said that this was the year when the much-feared recession did not take place. This concern spread like a virus over the summer. Everything was used as a pretext to forecast a recession; but two factors particularly fed these fears.
  • The first is the state of manufacturing. Manufacturing activity is contracting in a large number of countries, and in some, such as Germany, the crisis is very severe. It would be simple – but incorrect – to believe that manufacturing is an infallible guide to fluctuations in the whole economy. In reality, the main characteristic of the current business cycle is that problems in manufacturing have barely contaminated other sectors. A decoupling has taken place, illustrating the very different situation between world trade and domestic demand, with downside risks on the one hand and neutral risks or upside on the other. At present, some industries, such as the automotive sector in Germany or the aerospace sector in the US, continue to face structural problems, but the general picture is that global manufacturing confidence is past its trough. The easing of trade strains between the US and China probably has something to do with this.
  • The second source of anxiety lies in the interest-rate environment. Nominal interest rates are low everywhere, or even negative, leaving little space for monetary loosening to rescue the economy if necessary. The yield curve is also flat in many places and has even inverted at times. This signal is supposed to presage a deterioration in the growth and inflation outlooks. Without going so far as to claim that long-term bond yields have become “false prices” as a result of central banks’ increasing grip on the government debt market, the signal conveyed by yield curves is undoubtedly harder to analyse than in the past. The interest-rate environment is widely seen as abnormal, causing obvious pain to the financial sector, banks and asset managers. There is nothing like the financial sector for spreading and magnifying real economic shocks. Last year, central banks, led by the Fed, took the bull by the horns with loosening measures. While it is fashionable to say that monetary policies have lost all their effectiveness, this is not what we have observed in the wake of these decisions. Financial conditions have indeed eased, providing more oxygen to the world economy. In the absence of a true overheating, central banks are not taking much risk in maintaining such accommodative policies. Even if inflation picks up in 2020, as is likely, there is no prospect of any monetary tightening.
  • All in all, despite a struggling industrial sector, stagnant global trade in goods, and a bleak rate structure, the expansion phase that began more than ten years ago has not ended. In truth, most of the growth slowdown took place in 2018, not in 2019. Over the past four quarters, world real GDP has grown at a fairly stable annualised pace of around 3% q/q. In our opinion, this looks more like a floor than a ceiling for the year ahead.

download.jpg
Discover the full report

Disclaimer

Disclaimers for Distribution by ODDO BHF SCA to Non-United States Investors:

This publication is produced by ODDO BHF Corporates & Markets, a division of ODDO BHF SCA (“ODDO”), which is licensed by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) and regulated by the Autorité des Marchés Financiers (“AMF”).

This document, when distributed outside of the U.S., is intended exclusively for non-U.S. customers of ODDO and cannot be divulged to a third-party without prior written consent of ODDO. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This document has been developed by our economists. It does not constitute a financial analysis and has not been developed in accordance with legal requirements designed to promote the independence of investment research. Accordingly, there are no prohibitions on personal dealing ahead of its dissemination. “Chinese walls” (information barriers) have been implemented to avert the unauthorized dissemination of confidential information and to prevent and manage situations of conflict of interest.

At the time of publication of this document, ODDO and/or one of its subsidiaries may have a conflict of interest with the issuer(s) mentioned. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such. Past performances offer no guarantee as to future performances. All opinions expressed in the present document reflect the current context which is subject to change without notice. The statements, assumptions and forecasts contained in this document reflect the judgment of its author(s), unless otherwise specified, and do not reflect the judgment of any other person or of ODDO. This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this document is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice.

This document is for institutional investors only. It may not contain information necessary for others to make investment decisions. Consult your financial adviser or an investment professional if you are not an institutional investor.

Disclaimers for Distribution by ODDO BHF New York Corporation to United States Investors:

Please refer to the most recent research reports on the subject companies for complete information and relevant disclosures.

This document is produced by ODDO BHF Corporates & Markets, a division of ODDO BHF SCA ( “ODDO”). It is distributed to U.S. investors exclusively by ODDO BHF New York Corporation (“ONY”), MEMBER: FINRA/SIPC, and is intended exclusively for U.S. institutional customers of ONY and cannot be divulged to a third-party without prior written consent of ONY. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This document is being furnished to you for informational purposes only and should not be relied upon as sufficient to form a basis for any investment decision.

At the time of publication of this document, ODDO, and/or one of its subsidiaries may have investment banking and other business relationships with any of the companies in this report. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such. However, ODDO has no obligation to update or amend any information contained in this publication. Past performance offers no guarantee as to future performance. All opinions expressed in the present document reflect the current context which is subject to change without notice. This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of particular clients. Clients should consider whether any advice or recommendation in this document is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice.

This document is not a research report as defined in FINRA Rule 2241(a)(11) because the material in it is limited to one or more of the exclusions of the definition of research report in Rule 2241(a)(11)(A). This document is for institutional investors only. Consult your financial adviser or an investment professional if you are not sure you are an institutional investor.

Disclosures Required by United States Laws and Regulations:

Rule 15a-6 Disclosure: Under Rule 15a-6(a), any transactions conducted by ODDO, and/or one of its subsidiaries with U.S. persons in the securities described in this document must be effected through ONY.

Contact Information of firm distributing investment recommendations to U.S. investors: ODDO BHF New York Corporation, MEMBER: FINRA/SIPC, is a wholly owned subsidiary of ODDO BHF SCA; Philippe Bouclainville, President (pbouclainville@oddony.com) 150 East 52nd Street New York, NY 10022 212-481-4002.

Statement of conflict of interests of all companies mentioned in this document may be consulted on Oddo & Cie’s