1250 GMT February 17, 2020
“The world leads and the US lags,” Joachim Fels, global economic adviser for Pacific Investment Management Co., which oversees $1.91 trillion in assets, told Bloomberg Television. In one of the more pessimistic forecasts out there, Pimco predicts the US expansion could slow to about 1 percent in the first half of this year before accelerating.
The projected 2020 pattern would be in contrast to what happened in the past two years, when US demand was boosted by President Donald Trump’s tax cuts while economies elsewhere were weaker and weighed down by his America First trade policies.
“We are turning on its head the story we’ve been telling each other for the last two years, namely that Europe was bad and the US was good,” said Torsten Slok, chief economist for Deutsche Bank AG.
That reversal of fortunes has implications for investors. European stock markets should outperform the US while yields on German bunds should converge upward toward those on US Treasury securities, Slok said.
To be clear, the US economy is still projected to climb faster in 2020 than that of other major industrial countries including Japan and Germany. What’s changing is what JPMorgan Chase and Co. global economist Michael Hanson called “the delta on growth.”
Hanson sees US growth slowing to 1.7 percent this year from last year’s 2.3 percent, even as the worldwide expansion holds steady at about 2.5 percent. He and his colleagues have dubbed the shift “the end of US exceptionalism.”
Optimism about prospects for 2020 growth makes sense. 2019’s monetary easing adds a little momentum. A mini-trade deal has been done. Still, ‘better than expected’ is not the same as ‘good’. A fractional acceleration in global growth won’t reflect outperformance in the US and China - which face a continued if moderate slowdown.
The switch in the composition of growth is being driven by policy. The stimulus from Trump’s 2017 tax reductions and government spending increases is disappearing just as other economies, particularly in Asia, begin to benefit from their own expansionary steps.
Export-dependent economies such as Germany and Taiwan will gain more than the US if fading fears about an all-out US-China trade war and a Brexit blow up spur a pick-up in international trade.
What’s more, “a cloud of uncertainty will hang heavily over the US economy throughout the year” in the run-up to the November presidential election, said Moody’s Analytics Inc. chief economist Mark Zandi.
“Businesses are going to be focused on what’s going to happen on the other side of the election” and will be inclined to delay spending plans as a result, he said.
That could prove to be particularly the case this year given the likely big policy differences between Trump and whomever the Democrats choose to run against him, Zandi added.
There are already some early indications that growth differentials in 2020 will swing away from the US to the rest of the world.
The US jobs market ended 2019 on a somewhat softer note, with payrolls and wage growth slowing in December as the unemployment rate held steady at a half-century low of 3.5 percent.
Troubles at aircraft maker Boeing Co. could trim about half a percentage point from US growth in the first quarter, lowering it to roughly 1.5 percent, Zandi said.
Asia — the biggest contributor to world growth — is showing signs of picking up with key manufacturing gauges stabilizing in the wake of the US-China trade agreement and signs of a bottoming in demand for technology products like semiconductors.
South Korea’s semiconductor shipments rose 12 percent in the first 10 days of January from a year earlier — the first time the preliminary figure posted growth since October 2018.
Goldman Sachs Group Inc. Chief Economist Jan Hatzius argued that the US economy will benefit disproportionately from an easing in financial conditions on the back of interest rate cuts and ebbing trade tensions.
Meantime, Stephen Jen, chief executive officer of Eurizon SLJ Capital, reckoned optimism on the Chinese and European economies is overdone. “I don’t agree that the US will under-perform in 2020 and suspect that the market may be a bit too optimistic on the rest of the world,” he wrote in a recent note.
But Pimco’s Fels said global demand in coming months will rely more on the likes of China and Germany than America.
“The US will probably only join in this mild economic recovery in the second half of this year,” he said.