Early Christmas for (still weak) global growth

There is a growing consensus that global economic growth will slowly recover in 2020, particularly in the second half of the year.

We made this prediction nearly four months ago in Central banks to the rescue…with a lag (27 August 2019), pointing to the positive, lagged impact of central bank rate cuts on global GDP growth.

Since May, the global central bank policy rate has been cut about 50bp to just below 2.20% – its lowest level in nearly two years – and if anything, global GDP growth has seemingly stabilised a little earlier than we had anticipated at around 3.0% yoy.

Our monthly measure of global retail sales also shows that growth has been broadly stable year-to-date at around 2.7% yoy.

We maintain our view that the 4-quarter lagged relationship between the global central bank policy rate and global GDP growth points to broadly stable GDP growth of 3.0% yoy in H1 2020 and a modest recovery in H2 2020 to around 3.5% yoy (see Figure 1).

If this proves correct, we would expect central bank rate cuts to become increasingly rare over the next 12 months.

However, as our analysis shows, fluid international trade developments, including between the United States and China, are still likely to condition our GDP growth (and central bank policy rate) forecasts going forward.



Read the full research piece here