It’s always risky to make economic predictions at the beginning of the year. Be that as it may, it could be useful to keep an eye on certain indicators with the potential to anticipate, or at least explain, the behaviour of the economy.
The following five indicators are among those most frequently cited by economists.
It’s the great paradox of 2019: while stock markets, for the most part, were generating outstanding returns, the rate of economic growth slowed somewhat worldwide. In fact, this trend has been entrenched for the past ten years or so, but the International Monetary fund is now expecting a slight improvement at the global level in 2020. That said, even though a slowdown mustn’t be confused with a recession, many experts are keeping close tabs on the growth outlook in developed countries, which is looking to remain as sluggish as it was in 2019.
As mentioned above, stock market performance, generally speaking, was spectacular in 2019. From Januar 1 to December 31, the MSCI World Index was up by almost 24%, Canada’s S&P/TSX Index by more than 19%, and the S&P 500 in the U.S. by close to 29%. Globally, these are the best returns in 10 years. At the time of this writing, in early January, this upward trend seems to be holding, despite deterioration of the situation between the United States and Iran. For the rest of the year, though, a repeat of 2019 is not widely anticipated by experts, especially given that stock prices have risen so high. However, many remain optimistic, although Trading Economics is forecasting price declines in most markets.
Debt and interest rates
At the global level, government, corporate and household debt have climbed to record levels. This would be due in large part to the monetary policies of the central banks. By keeping interest rates very low (and most having announced their intention to hold to this course), they facilitate access to credit. The World Bank, itself a major lender, has expressed concern about this situation, especially for emerging economies, which would be more vulnerable to a future financial market crisis or the effects of a trade war. In Canada, however, the federal government, which plans to continue generating deficits until further notice, regards the debt-to-GDP ratio as still within acceptable limits.
In its 2020 Economic Outlook, the BDC predicts a rebound in the real estate market, and this, along with residential investment and household consumption, should benefit Canadian entrepreneurs. In fact, despite global uncertainty and ongoing weakness in business investments, experts expect that household consumption will continue to buoy the economy and that the real estate market, which experienced slower growth in 2019, will gain ground. This view would be partially confirmed by the experts of the Teranet and National Bank House Price Index, who reported in December that the housing market would have some momentum going into 2020.
The geopolitical situation
Finally, the geopolitical situation is a major uncertainty factor in 2020. The outcome of the U.S. elections, President Trump’s impeachment hearing, the trade wars being waged by the U.S., especially with China, Brexit, political tensions and even military conflicts (notably with Iran), are all unknowns that could have an impact on the economy and the markets. On top of that, the economic effects of climate change and water scarcity are increasingly becoming part of the conversation. The World Bank figures that in some countries water shortages are reducing economic growth by more than 30%. Some experts are beginning to reflect on how this situation might possibly affect economic sectors that rely on high water consumption.
As always, it could be important to approach these forecasts with some caution. Nonetheless, these five indicators provide a useful backdrop for a glimpse of what may lie ahead in 2020.
The following sources were used to prepare this article:
World Bank, “Worsening Water Quality Reducing Economic Growth by a Third in Some Countries.”
BDC, “2020 economic outlook: modest Canadian growth amid uncertainty.”
Bloomberg, “Almost Everything Wall Street Expects in 2020.”
CBC, “What voters need to know about deficits and the debt.”
Internaltional Monetary Fund, “Real GDP Growth.”
Foreign Policy, “The Global Economy 2020: A Positive Outlook Shadowed by China, Debt, and Trade Tensions.”
House Price Index, Teranet and National Bank of Canada, “Housing market has momentum heading into 2020.”
National Bank of Canada, “Monthly Economic Monitor, December 2019.”
Journal de Montréal, “Quelle année boursière !”
Trading Economics, “Markets.”