Global economic growth likely to slow to 3.2 pct in 2020 – DNB Markets

The global economic growth momentum has not been stronger since before the financial crisis. The cyclical rebound is likely to hold up in the near-term; however, it is expected to decelerate in the coming years partially because of a policy-induced slowdown in the Chinese economy, noted DNB Markets in a research report.

“We expect global growth to decelerate from a peak of 3.4 percent in 2018 to 3.2 percent in 2020”, stated DNB Markets.

For most major economies, growth is expected to continue to exceed the normal, thereby bringing the jobless rate further down and bringing up inflation. U.K. is an outlier, with Brexit impacts dragging the outlook of inflation and employment.

Despite falling unemployment and wage growth, core inflation has stayed low in major economies. National factors such as structural changes in the labor market, backward lookingness in wage formation, low productivity growth and more ample labor resources than captured in standard unemployment measures can explain some of the softness, said DNB Markets.

Furthermore, aggressive global competition because of the presence of global value chains in combination with technological improvements that carry on facilitating outsourcing of production, is a vital contributor. This factor is unlikely to wane in the future, but will continue to curb the rise in wages and inflation as capacity pressures rise.

“We expect the Fed to raise its policy rate by 0.25pp in December, and by another 100 basis points in 2018 and 2019, peaking at 2.50 percent, a level we see as neutral”, stated DNB Markets.

Meanwhile, with stronger prospects for the economy, Riksbank and ECB are expected to remove unconventional measures next year.

“In 2020, we believe that the ECB will be confident enough to start raising the refi rate by 50 basis points. SNB, BoJ and BoE will be laggards, with the two latter keeping rates unchanged”, added DNB Markets.

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