Stockholm (Ekonamik) – This past week Intervalor arranged a breakfast seminar with RBC, where Eric Lascelles, Chief Economist gave his outlook for the new year. The picture he painted was one of a year which will likely be less volatile than last.
“Global growth does seem genuinely to be stabilizing” and Eric Lascelles expects the late business cycle to continue. In his view headwinds, such as protectionism and uncertainties, are getting better. On the positive side, he points to central banks’ activities and fiscal stimulus on a global scale starting to become relevant.
“Recession risks are not trivial. We still think there are considerable risks, but it is also down”, says Lascelles. “China has certainly slowed”, he continues, but “we can also begin to see effects of their stimulus in our credit data and early indicators and I would present China as an upside risk of stabilization”, he continues.
Business intentions in the USA have stopped deteriorating and the outlook for investments is beginning to look somewhat better, Lascelles shows. Also, the housing market continues to be strong. Both are factors that can be attributed to Central bank activities as Lascelles points out. At the same time “risks appear to be decreasing, down from the unusually high level of uncertainty that we saw in 2019” and he expects this trend to continue thanks to considerably lower Brexit risk, lower recession risks, some progress in US-China trade relations, although not back to pre-2019 levels, and effects of Chinese stimulus.
“Financial conditions have improved, which all else alike should lead to accelerating growth, but protectionism, though getting better, is working as a headwind.” The US business cycle could be characterized as having been in late-cycle for the last couple of years. The risks right now, Eric Lascelles claims, are tilted towards an ending, “but not just yet”. Markets perceive the recession risk to have fallen from 43% last September to about 22% per cent risk now, measured as the New York Fed’s yield curve-based recession model, he points out.
He believes that globally fiscal stimulus will be greater than is generally expected since governments tend to spend more rather than less and borrowing will remain cheap. “In Europe, there is a mild form of Japanification going on as the ageing population is leading to slower growth and inflation. At the same time, Japan is partially un-Japanifying as programs and reforms lead to inflation and growth slowly edging up a little bit.” The global synchronized growth story over the last few years he now expects to turn into a fairly synchronized stabilisation, virtually because the monetary impulses are global. A final deal for Brexit is not likely to be signed before year-end, he says, most likely is a “shallow fair trade agreement” and a deeper later on. For emerging markets, a peaking dollar and the expected global development could lead to a somewhat better outlook.
“Risks have not disappeared, but shrunk. The US 2020 election and USA-Iran tensions will have to be monitored, a step two in US-China trade negotiations is not likely to come through, but in total more things have turned positive than negative”, Eric Lascelles concludes.