The outlook for 2020 from a technical perspective
- 16 December 2019
- 10 minutes
Most investors might not realise what the global economy might be telling us
In a November 2019 roundtable, Marcus Brookes, Keith Wade and Jon Wingent took part in a discussion led by David Ryder in which the outlook for 2020 was investigated.
In this extract, we look at some broad economic indicators that have implications for investors.
DR: Keith, how would you assess the outlook for the consumer in the UK and the US, and while we’re looking at the international scene, what about the outlook for manufacturers, particularly in Germany? Do you think we have a manufacturing recession already, and are we going to see any trouble with consumers?
KW: In terms of manufacturing, we do have a fairly widespread recession at the moment. And a lot of that seems to have stemmed from the renewed trade dispute between the US and China. Things have begun to calm down a bit. We appear to be nearing a “phase 1” deal between the US and China, which could help. But the manufacturing indicators at the moment don’t paint a positive picture of the near future, though the numbers have begun to stabilise recently.
The industrial sector has been hit pretty badly. The uncertainty over international trade has made planning ahead difficult because businesses haven’t known what to expect. So capital expenditure i.e. investment by businesses in the likes of machinery or factories, has been reduced. It has been like this in the UK, US and across Asia.
The good news is consumer surveys are holding up really well. I think it’s a reflection of the fact that manufacturing in most countries only accounts for around 10%  of the respective national economy, so it’s not enough to cause the whole economy to rollover.
The exception to that is Germany where manufacturing is about 20% of the country’s economy. So that economy has suffered more than most.
But it’s not all bad. For all three countries, inflation is under control, wages are beginning to pick up, so people are seeing some income growth, debts aren’t too high, mainly because we had the global financial crisis and banks stopped lending and people have had to save more. People are actually in a better position than we were when we went into the last crisis.
DR: Marcus, what’s different between now and the previous financial crisis?
MB: I think Keith just hit the nail on the head. The personal balance sheet and corporate balance sheet look so much better this time in that they’re not overburdened with debt. It appears that the painful experience of the 2008-2011 recession forced people to adjust their expectations, what their lifestyle should be and how much debt they should take on. As a result, the excesses in house-buying and mortgage borrowing have not returned.
So going into the slowdown that many observers are waiting for, it feels like in the UK we’ve already had a bit of a shock in 2016. And that has provided a healthy correction in assets prices and expectations.
But I would argue that when we do get an economic downturn, it’s more likely to resemble that of 2000 rather than that of 2007-2009. The cause of the next downturn is less likely to be too much debt and more likely to be a lack of demand for some reason.
DR: What do you think the potential causes could be?
MB: A recession in the US, China suddenly having a moment. We have to ask ourselves if the total debt burden that China has built up is appropriate. If the country maintains steady economic growth, it could be managed fairly comfortably, but from the standards of mature economies in the west that cannot dream of China’s sustained economic growth levels, it looks pretty scary.
 In 2018, German manufacturing accounted for 20.8% of the country’s total gross domestic product. The respective numbers for the US and the UK were 11.1% and 8.9%. Source: World Bank website accessed on 28 November 2019.
Round table attendee biographies
David Ryder, Senior Investment Writer and Analyst
Schroders Personal Wealth
David has been leading the production of investment commentary at Schroders Personal Wealth (and before that for Lloyds Private Wealth) for more than four years. His 25 years of experience include publishing, broadcasting and journalism across a range of financial and investment topics.
Marcus Brookes, Chief Investment Officer
Schroders Personal Wealth
Prior to his role in Schroders Personal Wealth, Marcus was Head of Multi-Manager at Schroders from 2013 with responsibility for the Schroders multi-manager team and investment process. Marcus has over 25 years’ experience within investment management, specialising in manager selection and asset allocation.
Jon Wingent, Head of Investment Specialists
Schroders Personal Wealth
Jon Wingent has been Head of Investment Specialists since September 2016. Jon heads the investment specialist which supports colleagues and clients with subject matter expertise on investment related matters. Before joining us, Jon was an investment director at Close Brothers Asset Management. He has 17 years’ experience in the investment management industry.
Keith Wade, Chief Economist
Keith is responsible for the economics team and the Schroders house view of the world economy. He is a member of the Group Asset Allocation Committee. He joined Schroders in 1988, before which he spent four years as a research officer at London Business School.
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