Three experts weigh in on what 2020 could look like amid the continuing US-China trade tension, market volatility and predictions of the global economy growing at its slowest pace since the GFC.
Assistant Director and Economist, Moody's Analytics
Navigating slower demand conditions with an outlook that is plagued with downside risk – this will be the key issue for business in 2020.
The Australian economy is on track to grow just 2 per cent in 2019, which is its slowest expansion in a decade. Income growth is weak, the unemployment rate has trended higher and geopolitical ructions offshore are aplenty, not least because the trade war between the world’s two largest economies, China and the US, continues to fester, with a lasting truce elusive.
This tussle is creating heightened global uncertainty, causing firms to delay hiring and scale back investment.
The Reserve Bank of Australia has stepped up support to shore up domestic demand, particularly among subdued consumers, who have been in a funk since the second half of 2018. Further monetary stimulus is expected over the next six months, but the likelihood of a rebound in activity is remote. At best, it will be a slow grind towards improvement.
Consumer-facing businesses like the retail trade and residential construction are expected to remain particular weak points, while the outlook for the mining sector has dimmed a little, with recent iron ore price falls, after very high prices previously.
"Further monetary stimulus is expected over the next six months, but the likelihood of a rebound in activity is remote. At best, it will be a slow grind towards improvement." Katrina Ell
Some cushioning will come from the weak Australian dollar. It has proven a good shock absorber in the past for improving export competitiveness and encouraging more domestic consumption, and it will continue as partial insulation through 2020.
Chng Lay Chew FCPA
CFO, Singapore Exchange
From the perspective of corporate Singapore, the top business issues in 2020 fall into a few interconnected categories. The first is the US-China trade war, which shows no sign of abating. There will also be worries about increased economic protectionism among countries. This is particularly important for Singapore, which thrives on the free flow of trade.
The International Monetary Fund has warned that trade-war risks are weighing on the global economy and has downgraded its 2019 and 2020 growth outlook twice this year. In Singapore, the government has reduced its 2019 forecast range for gross domestic product to 0 per cent to 1 per cent from its previous projection of 1.5 per cent to 2.5 per cent.
A host of growing economic risks has been cited, including the US-China tariff and technology war, slowing growth in China, Hong Kong’s political situation, the Japan-Korea trade dispute, and Brexit.
A second issue is market volatility, which will continue to revolve around the US-China trade war, and tensions in the Middle East, which could threaten oil supplies. The months prior to the US presidential election in November 2020 could bring more volatility to markets, as politicians ramp up campaign rhetoric.
"The top business issues in 2020 will fall into a few interconnected categories. The first is the US-China trade war... There will also be worries about increased protectionism among countries." Chng Lay Chew FCPA
Finally, cybersecurity has grabbed international headlines in recent years. According to the International Monetary Fund’s 2019 Global Risks Perception Survey, cyber attacks are the fifth most important global risk by likelihood over a 10-year horizon.
Going into 2020, we are likely to see cyberthreats continuing to evolve, with corporate budgets for cybersecurity increasing.
Chief economist, Australia, New Zealand and Global Commodities, HSBC
Next year is set to be challenging for the global economy. HSBC’s economics team expects global growth in 2020 to run at its slowest pace since the global financial crisis, weakened by the US-China trade war. Growth in China is expected to slow from 6.2 per cent in 2019 to 5.8 per cent in 2020, the slowest pace of growth in 30 years.
Thankfully, the global slowdown has, so far, had only a limited impact on Australia. As China’s exports have slowed, onshore policymakers have been boosting spending on infrastructure, which has supported demand for iron ore and coal, among other commodities, from Australia. Mining company profits have been strong, and so have Australian Government tax receipts.
However, Australia’s economy has still been slowing, due to domestic factors. A cooling housing market and weak local wages growth have weighed on consumer spending.
Policymakers have taken action: the Reserve Bank of Australia recently cut its cash rate to a new record low.
For 2020, we expect the weakening global backdrop to become more of a headwind for local growth. However, we expect a further fall in local interest rates to offset this, and expect interest rates to remain low for a considerable period of time. This should support an upswing in the housing market and a pick-up in household spending.
"HSBC's economics team expects global growth in 2020 to run at its slowest pace since the global financial crisis, weakened by the US-China trade war.' Paul Bloxham
Strong tax revenues are also expected to support increased government spending, particularly on infrastructure. These developments should help to underpin Australian businesses’ confidence, and their willingness to invest and hire. We see Australian growth picking up to 2.6 per cent in 2020.
Meet the experts
Katrina Ell is an assistant director and economist in the Sydney office of Moody’s Analytics. She manages the Asia-Pacific edition of Economy.com and is responsible for the research, analysis and forecasting of Asia-Pacific economies. Ell is regularly quoted by international media such as CNBC, Bloomberg, the Wall Street Journal and Financial Times. She previously worked as an analyst at the Australian Prudential Regulation Authority. She received her bachelor’s degree in economics (honours) from Macquarie University, where she is completing her master of applied economics.
Chng Lay Chew FCPA
Chng Lay Chew FCPA is CFO of the Singapore Exchange, where he oversees the finance, treasury and investor relations functions. He has more than 30 years’ experience in accounting, financial management and leadership in leading banks DBS and JP Morgan. He is also an advisory board member of the Singapore Management University’s School of Accountancy.
Paul Bloxham is the chief economist (Australia, New Zealand and global commodities) and managing director, global research, at HSBC Bank Australia. He is also a member of the Australian National University’s shadow Reserve Bank board, and is an adjunct professor at Curtin University. Prior to joining HSBC in 2010, he spent 12 years as an economist in the Reserve Bank of Australia’s economic analysis department, where he headed the overseas economies and financial conditions sections.