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Economists and other experts predict overall global economic growth to slow in 2020. However, some countries are expected to fare considerably worse than others, especially those that could be hurt significantly if the U.S.-China trade battle re-escalates after the current short-term truce.

(President Donald Trump said Tuesday on Twitter that he will sign the first phase of a trade deal with China on Jan. 15 at the White House and also plans to travel to Beijing for talks on the the second phase.)

“Overseas economies should see modest improvements as trade tensions ease,” according to J.P. Morgan’s Market Insights Investment Outlook for 2020. However, it warned that, “around the world, loose monetary policy, sluggish growth and limited inflation could further inflate the negative-yielding bond bubble” that grew $3.7 trillion in 2019 to $12 trillion.

The “mini deal on trade” between China and the U.S. “suggests a mini-bounce in global growth,” according to Ethan Harris, head of global economics at Bank of America Merrill Lynch. “Activity should pick up in the spring as the lagged impact of policy easing and reduced trade uncertainty kicks in.”

In addition, the combination of a “trade war ceasefire, a super pre-emptive Fed and aggressive easing from China … suggest relatively low recession risk in 2020,” he said.

However, Harris warned that, outside the U.S., “inflation is likely to remain stuck below target” and inch lower, from 3.1% in 2019 to 2.7% by 2021. Global GDP was expected to slow from 3.8% in 2018 to just over 3% this year and in 2020, he said.

LPL Financial was somewhat more optimistic, projecting 2020 global GDP will be flat with the 3.5% from this year and down from 3.6% in 2018. However, it projected emerging markets GDP alone will jump to 4.6% from 3.9% in 2019, after tumbling from 4.5% in 2018.

The International Monetary Fund projected in the fall that global 2020 growth will “improve modestly,” to 3.4% from 2019, down 0.2% from its April forecast. But the recovery it’s expecting is “not broad based and is precarious,” the IMF said in its World Economic Outlook.

Best Performers by Country

Growth in advanced economies is expected to slow to just 1.7% in 2020, just as it predicted for 2019, but emerging market and developing economies are projected to grow 4.6% in 2020, the IMF said.

About 50% of that is expected to be “driven by recoveries or shallower recessions in stressed emerging markets,” including Argentina, Iran and Turkey, and the rest by recoveries in countries where growth “slowed significantly” in 2019, including Brazil, India, Mexico, Russia and Saudi Arabia, it said.

Meanwhile, the emerging markets that Anne Milne, head of global emerging markets at Bank of America Merrill Lynch, predicted will be the “best performers” in 2020 are Brazil, China, South Africa, Turkey and Ukraine, due to “attractive valuations, stable fundamentals and improving GDP growth.”

The “sluggish” growth seen globally in 2019 has largely resulted from the significant slowdown in global trade and manufacturing, much of it courtesy of “higher tariffs and prolonged uncertainty surrounding trade policy” that have “dented investment and demand for capital goods,” the IMF said.

Also having an impact has been “disruptions form new emission standards in the euro area” and China that have hit the automobile sector, it pointed out. As a result, trade volume growth in the first half of 2019 was a mere 1%, the “weakest level since 2012,” it noted.

On the other hand, the service sectors “across much of the globe continues to hold up,” which the IMF says has “kept labor markets buoyant and wage growth healthy in advanced economies.”

At the same time, “monetary policy has significantly eased almost simultaneously across advanced and emerging markets,” the IMF noted.

While strong employment and consumption continue to offset trade uncertainty in the U.S., the same cannot be said for other parts of the world.  Brexit-related concerns continued to weaken growth in the U.K. for much of 2019; meanwhile, Hong Kong, Singapore and South Korea have been hurt by slowing growth in China, it said.

Wells Fargo Securities Economics Group projected in its 2020 outlook report that global economic growth will be slow again in 2020 and warned about a few trends that “could create crosscurrents that raise the risk of recession.”

Those trends include the U.S.-China trade war, China continuing to “prioritize services growth over construction and manufacturing,” additional interest rate cuts and those falling rates not stimulating faster personal spending growth, it said.

Wells Fargo also predicted a “wave” of earnings-per-share downgrades by companies in markets outside the U.S. At the same time, it predicted, “developed market equities will be constrained by the slowdown in global trade.” Slower growth, meanwhile, “could put a spotlight on alternative” investments, it said, adding, “global alternatives merit consideration in an aging economic expansion.”

Several experts are projecting that if the U.S. and China do wind up cutting a deal, it will not be as significant as either side would like.

But, as we head into 2020, “global economic growth may depend on comprehensive trade deals” being reached, along with “fiscal stimulus rather than actions by central bankers to reverse” the slowdown seen in manufacturing and business investment, according to Jeffrey Kleintop, chief global investment strategist at Charles Schwab.

And “if tariffs are not lifted” by China and the U.S. “before businesses cut jobs, it may undermine the consumer spending that is supporting the world’s economy” now, Kleintop said.

Kleintop also warned in his 2020 Global Market Outlook report that “unless global growth reaccelerates, international stocks may remain stuck within the volatile range of the past two years, given their high sensitivity to economic conditions.”

Although there’s “potential for a global recession,” he said that grim outcome is “not inevitable” and what’s currently a positive is “hopes that we are nearing an end to the trade war may be helping lift manufacturing sentiment.”

Global stock markets, meanwhile, are currently “less likely to move in tandem than they did in the past,” according to Kleintop, adding that “lower correlation may make broad global diversification across long-term allocation targets more rewarding than holding a narrowly focused portfolio.”

Europe, Japan Lag

Despite the ongoing trade war, since the first quarter of this year, growth in China has “recovered somewhat and any further pick-up is likely to be gradual given that headwinds from trade uncertainty are likely to persist and policy easing has been relatively modest,” according to Joseph Little, global chief strategist at HSBC Global Asset Management.

The “bottoming of growth in China,” meanwhile, has “coincided with tentative signs” of stabilization in other emerging markets, Little said. Asian emerging markets, in particular, “appear to be recovering,” he said, adding: “With only modest Chinese growth and trend-like” U.S. growth, it is “unlikely that EMs will experience a strong upturn, but the recent improvements in the Asian technology and trade cycles bode well for near-term growth momentum.”

Europe and Japan “remain the laggards of the global economy, but a gradual improvement in EM growth should help European export performance,” Little went on to say.

LPL agreed about Europe and Japan, saying those markets “continue to struggle with trade uncertainty, geopolitical concerns, and sluggish growth.”

Also agreeing on the weakness of Europe and Japan was Tony Cousins, CEO, chief investment officer and director of portfolio management at Bank of Montreal Global Asset Management division Pyrford International in London.

“We’re being very cautious” about 2020, Cousins told ThinkAdvisor, pointing to “clouds on the horizon” that include ongoing trade tensions and a “huge rise in debt” that leaves the economic system “in quite a vulnerable position” this late in the current cycle.

The banking system in Europe, meanwhile, is “very unhealthy and the economy is sort of grinding to a halt,” Cousins said, calling Europe’s banking system “very weak” and noting that, unlike in the U.S. after the 2008 financial crisis, it “was never cleaned up.”

Meanwhile, Cousins expects Asia to “significantly outperform” the global equity benchmark in 2020 as earnings “continue to rise,” he said. However, he noted that he excludes Japan from his Asia measurements because he said that country “has more debt to GDP than Greece,” as well as the “worst demographics on the planet” due to a continued low birth rate.

That has been causing the workforce to decline “even faster” than the population there as the population continues to get older and become dependent on the shrinking labor force to help support them, he said.

Although several other experts also see Japan as one of the weaker developed economies right now, Neil Hennessy, chairman, chief investment officer and portfolio manager at Hennessy Funds, said he’s bullish on Japan, in part due to its prime minister, Shinzo Abe, continuing to make tourism a key element of his economic program.

Japan achieved its target of 20 million annual tourists by 2020 five years early and set a new goal of reaching 40 million for 2020 and 60 million by 2030, Hennessy said, citing the Japan National Tourism Organization. The country stands to get a tourism boost from the Olympics it’s hosting in Tokyo this summer, he told reporters at the firm’s annual market outlook event in New York.

Japanese equities, meanwhile, have been trading recently at compelling valuation levels compared with other developed equity markets globally and relative to their own historical averages, according to Hennessy.