Macroeconomics

What awaits us in 2020?

The response to how the world economy will evolve in 2020 remains unclear for most international institutions, which opt for a cautious approach in their latest forecasts, adopting an undisguised pessimistic tone.

Pessimism starts with the analysis of the year 2019, which presented the lowest economic growth since the beginning of the financial crisis (in terms of year-to-year evolution of the GDP). All organizations agree on the causes: the uncertainty generated by the so-called “trade war” (the main war taking place between the USA and China, albeit not the only one) and secondarily, the emergence of other geopolitical conflicts. The headlines on the forecasts for 2020 are not very encouraging…

United Nations: setback in sustainable development

Compared to the growth of 2.3% in 2019 –still the weakest increase in the last decade-, the World Economic Situation and Prospects report by United Nations cautiously predicts “a possible growth of 2.5% in 2020.” It goes on to say that “geopolitical tensions could hinder this recovery. In a downside scenario, global growth would slow to just 1.8% this year.” The UN alerts that a prolonged weakness in global economic activity could “cause significant setbacks for sustainable development, including the goals to eradicate poverty and create decent jobs for all.”  

“These risks could inflict severe and long-lasting damage on development prospects. They also threaten to encourage a further rise in inward-looking policies, at a point when global cooperation is paramount,” António Guterres, UN Secretary-General, points out.

World Bank: rise in debt and slowdown in productivity

With the same caution, the World Bank also forecasts a slight growth increase for 2020 (a meager 0.1%), but adds two new elements in its analysis:

Debt wave: its report states that “the largest, fastest and most broad-based wave of debt accumulation among emerging and developing economies has occurred in the last 50 years.” It then points out that public borrowing can be beneficial if used to finance growth-enhancing investments in infrastructure, health care and education. However, the current situation implies the acceptance of a very high dependence on external situations while also limiting government action.

In emerging and developing economies over the last decade,
growth has slowed while debt has increased. (World Bank)

Productivity slowdown: the World Bank indicates that “productivity” (output per worker) is essential to raising living standards and achieving development goals. Today, it continues to be an indicator of imbalance: a worker in emerging and developing economies produces less than 20% of the output of a worker in an advanced economy. To rekindle productivity, “efforts are needed to stimulate private and public investment; upgrade workforce skills; help resources find the most productive sector; reinvigorate technology adoption and innovation and promote a growth-friendly macroeconomic and institutional environment.”  

A real challenge…