Updated: Jan 2
The world economy ended 2019 with extraordinary juxtapositions. Global populism--visibly manifest in the now-imminent Brexit, the workings of the current U.S. administration, and street protests in Hong Kong--keeps thundering ahead with its distinctively anti-elitist challenge to established political and economic systems. Yet Wall Street, a barometer of economic confidence (not to mention the fortunes of the elite) is on its way to racking up the best annual performance in six years.
The benchmark S&P 500 has boomed 28% and NASDAQ 35%, both powered by leading technology stocks like Apple and Microsoft. Chinese e-commerce giant Alibaba, whose shares in New York are up nearly 50%, furthermore registered Asia's best-performing IPO through a secondary listing in Hong Kong. Alibaba's successful IPO came in November--the timing notable for occurring in the midst of some of Hong Kong's most virulent anti-government protests and only days after Alibaba set another in an annual string of world records for one-day sales. Chinese consumers (in an aging nation with a declining workforce and slowing GDP no less) shelled out $38.3 billion during the company's annual Single's Day shopping extravaganza on November 11.
Especially surprising is how, contrary to the certainty of most economists (and indeed, standard economic theory) about the disastrous consequences of a trade war, throughout 2019 continued frictions between the planet's two largest economies--though obviously suppressing global growth--did not squelch it either. World GDP is on course to register a respectable 3% for 2019.
The mixed (and missed) signals of 2019 should give ample reason to pause about trying to predict what's in store for 2020 and beyond. Various sections of the geoeconomics blog will provide updated analysis on interpreting developments as they unfold. For now, here are three big picture trends to keep in mind.
Until fundamental political and market failures--think rising income inequality and the unevenly shared spoils of globalization--are addressed, don't expect populism to go away any time soon. Nevertheless, 2020 is likely to see it rolled back or morphing in the guise of new causes and champions. Expect the aftermath of Brexit to turn the Tories back towards their previous center-right positioning. A Democrat is likely to win back the White House in 2020 because of mounting and well organized opposition to the Republican incumbent, Donald Trump. America's Democratic Party promotes a range of populist ideals but these tend to be more rhetorical than practiced when it comes to established political economics.
According to IMF data, after leading growth over the previous five years, from 2020, the world's top four economic entities (the U.S., eurozone, China, Japan, aka "the G4") will start to trail the world’s overall growth rate. This weakness will persist for at least the next five years. The G4 rank as systemic economies because of their importance to the world economic system and, unlike in the past, will provide the global economy less support than they have been. China and the Eurozone look particularly fragile within this cohort.
Emerging markets, which have been under stress during the hot phase of the US-China trade war, overall appear poised to rebound. They will be driving more of the world economy from 2020. Troubled EMs like Venezuela and Iran are unlikely to join in the recovery without substantial fundamental domestic reforms. After experiencing outright economic contracting in 2019, Hong Kong will likely return to positive growth (perhaps as high as 2%) as long as the political situation stays relatively stable.