Sales and Trading personnel at Macquarie are not independent and, therefore, the information herein may be subject to certain conflicts of interest, and may have been shared with other parties prior to publication. Note: To the extent Macquarie Research is referenced, it is identified as such and the associated disclaimers are included in the published research report. Please refer to the important disclosures 2020 Global Economic and Market Outlook The Year of Recovery 18 November 2019 This publication has been prepared by Sales and Trading personnel at Macquarie and is not a product of the Macquarie Research Department. Economists/Strategists Macquarie Securities (Australia) Limited Ric Deverell +61 2 8232 4307 ric.deverell As 2019 draws to a close, the market is pricing economic recovery, with equities in the US hitting new highs and long yields well off the recent lows. Notably, this optimism has broken out despite the balance of evidence suggesting that global GDP growth is still slowing, notwithstanding some tentative “green shoots” in the manufacturing sector. In the near term, the experience last year suggests that the September 2019 tariff increases will continue to weigh on growth. Along with the potential for renewed trade tensions as negotiations move toward a crescendo, this could see risk assets come under pressure for a time. However, looking into 2020, we expect a modest but broad-based economic recovery, which should in turn support a material improvement in global risk appetite, with equities, yields and industrial commodities all moving higher, as fears of recession fade. In this world, the US dollar would be likely to gradually deflate, supporting the expected EM recovery. While the rebound is currently more forecast than reality, we feel that the combination of a trade “truce”, policy stimulus in the US and China, the general improvement in market sentiment and the normal inventory cycle will be enough to bring the current “slowdown scare” to an end noting that growth in Q4 looks to be near the low point of the 2012 and 2015 mini cycles. Unfortunately, this outlook is predicated on the striking of the much-anticipated trade “truce” between the US and China. While we think a deal is likely, given the overriding political imperative in a US Presidential election year, it is far from certain. And given that global growth is currently approaching stall speed, a further escalation could see recession talk return to centre stage. 2020 Global Economic and Market Outlook 18 November 2019 2 Contents Executive summary: 2020, the year of recovery 3 Topical essays 8 Trade war: State of play 9 Dealing with the next downturn: Policy options 13 Brexit: State of play 17 2020 US Presidential and Congressional elections 19 Has trade divergence given rise to investment divergence in Asia? 28 Markets outlook 31 Global interest rate outlook: 2020 upside, but structurally still low 32 FX outlook: Peak US dollar has arrived 36 Oil and natural gas outlook: All eyes on demand 38 Metals and bulk commodities outlook: Industrial bears 43 Equity outlook: The bull market continues 47 Individual country economic outlook 49 United States: Midyear improvement on diminishing trade risks 50 Canada: Slower growth ahead 54 China: Getting worse before getting better 58 Eurozone: Modest recovery, but no 2017 re-run 62 Japan: Inflation target to remain elusive 65 India: Stimulus to support a gradual recovery 68 Australia: Gentlest of gentle turning points 71 New Zealand: Near-term downside 75 Forecast tables 78 Economic and market forecasts 79 Commodity price forecasts 81 Authors Macquarie Securities (Australia) Limited Ric Deverell +61 2 8232 4307 ric.deverell Justin Fabo +61 2 8232 0696 justin.fabo Hayden Skilling, CFA +61 2 8232 2623 hayden.skilling Macquarie Futures USA LLC Thierry Wizman +1 212 231 2082 thierry.wizman Macquarie Capital (Europe) Limited Tom Price +44 20 3037 2849 tom.price Eimear Daly +44 20 3037 4802 eimear.daly Vivienne Lloyd +44 20 3037 4530 vivienne.lloyd Jim Lennon, Senior Commodities Consultant +44 20 3037 4271 jim.lennon Serafino Capoferri +44 20 3037 2517 serafino.capoferri Marcus Garvey +44 20 3037 1185 marcus.garvey Macquarie Capital Markets Canada Ltd. David Doyle, CFA +1 416 848 3663 david.doyle Neil Shankar +1 416 607 5055 neil.shankar Macquarie Capital Limited Larry Hu, PhD +852 3922 3778 larry.hu Irene Wu +852 3922 3796 irene.wu Lynn Zhao +86 21 2412 9035 lynn.zhao Melody Dong +86 21 2412 9085 melody.dong Macquarie Bank Limited Singapore Branch Gareth Berry +65 6601 0348 gareth.berry Macquarie Bank Limited Hong Kong Branch Trang Thuy Le +852 3922 2113 trang.thuyle 2020 Global Economic and Market Outlook 18 November 2019