Risks recede - growth on a better trajectory
Having declined for the past 18 months, global growth is expected to reach a low point at the end of 2019, before gradually improving over the course of 2020 (Figure 1).
Figure 1. Global growth outlook (y/y)
We expect global growth to improve through 2020
While we do not expect growth to rise above potential through 2020, there is a slightly better growth outlook than we had previously expected. That said, in the context of "mid-cycle" growth recoveries, it would be considered modest.
But for asset markets, perhaps more significant than the improvement to the growth outlook is the view that the probability of a severe downturn or recession in 2020 has receded. This reflects a more constructive near-term view on the trade dispute between the United States and China.
At the time of writing, the text of a "Phase 1" deal between the US and China had been agreed by both sides. That included the US cancelling 15 per cent tariffs on about $150bn of Chinese goods that were due on December 15 and halving the tariff rate to 7.5 per cent on goods worth about $120bn which came into effect in September (while tariff of 25 per cent on around $250bn in Chinese imports remains in place). In exchange, the Chinese also cancelled tariffs that were due to be implemented on December 15 and agreed to substantially increase their imports of US agricultural, energy and other goods and services over the next two years, as well as tighten laws on technology transfer and intellectual property rights.
The agreement of a Phase 1 deal marks the first time that tariff rates have been reduced between the two economies since the dispute began in 2018.
Should this truce persist, it is expected to improve sentiment globally, reversing the sharp slowing in business investment seen across many major economies. It should also prevent the past weakness in the manufacturing sector (which is very sensitive to developments in international trade) spreading more widely into the much larger services sector.
However, as we saw through 2019, any truce in the trade war could prove to be fragile, with the potential for any number of factors related to the geopolitical and economic relationship a potential trigger for re-escalation. Moreover, we continue to expect strategic competition between China and the US will be an important factor in global economic developments for many years to come, irrespective of who occupies the White House.
Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL) as at 19 December 2019. Unless stated otherwise, any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. This material is not a recommendation to sell or purchase any investment.
In the UK & Europe this material has been prepared and issued by AIGSL, registered in England No.1151805. Registered Office: St. Helen's, 1 Undershaft, London, EC3P 3DQ. Authorised and regulated in the UK by the Financial Conduct Authority. In France, Aviva Investors France is a portfolio management company approved by the French Authority "Autorité des Marchés Financiers", under n° GP 97-114, a limited liability company with Board of Directors and Supervisory Board, having a share capital of 17 793 700 euros, whose registered office is located at 14 rue Roquépine, 75008 Paris and registered in the Paris Company Register under n° 335 133 229. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH, authorised by FINMA as a distributor of collective investment schemes.
In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1 Raffles Quay, #27-13 South Tower, Singapore 048583. In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business Address: Level 30, Collins Place, 35 Collins Street, Melbourne, Vic 3000, Australia.
The name "Aviva Investors" as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors' affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom. Aviva Investors Canada, Inc. ("AIC") is located in Toronto and is registered with the Ontario Securities Commission ("OSC") as a Portfolio Manager, an Exempt Market Dealer, and a Commodity Trading Manager. Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor ("CTA") registered with the Commodity Futures Trading Commission ("CFTC"), and is a member of the National Futures Association ("NFA"). AIA's Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 6060. RA19/1665/19122020