2020 recession has 1 in 5 chance of happening: report

economic growth
Market research firm IHS Markit predicts slow economic growth in 2020 against the backdrop of an uncertain trade climate and other unknown economic and political factors. The firm believes a recession is unlikely. (Pixabay)

The signs have been there. Stagnant sales, weak demand, an escalating trade dispute between the U.S. and China. We were possibly headed for a recession.

Not so fast, says market research firm IHS.

According to the firm’s annual Top-10 Economic Predictions, global growth is expected to stabilize at a rate of 2.5% in 2020 before edging up 2.7% in 2021. While acknowledging historically high levels of policy uncertainty, the firm says the probability of a recession has decreased for 2020, and now stands at one in five.

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“While the global economy seems to have dodged a recession, risks remain daunting,” said IHS Markit Chief Economist Nariman Behravesh in the report. “In the near term, the biggest threat is either an escalation of the U.S.-China trade conflict or the spark of trade conflicts in other regions, notably Europe. Premature repeal of fiscal stimuli is another potential risk to the stabilization we forecast.”

“A return to global growth is most likely in the second half of 2020. We are watching trade and industrial production in Europe and China for the green shoots of accelerating growth,” added Behravesh.

According to the report, the U.S. economy is expected to expand at a rate of 2.1% in 2020, down from the stimulus-driven average of 2.5% recorded from 2017 to 2019. Growth will be supported by a few special factors, including the “phase one” trade deal with China, as well as solid consumer spending. But next year’s impending presidential election could provide some policy surprises, both positive and negative, which could affect the outlook.

Given the turmoil and uncertainty of 2019, the IHS news could be a sign that things are turning around.

The electronics industry has taken its lumps this year. Semiconductor sales have tumbled, and even with a recent uptick, year-end semiconductor sales are likely to be down globally. Semiconductor suppliers are banking on upcoming trends such as 5G for recovery next year.

At the same time, weak demand has created ripple effects for electronics manufacturing, with fabs delaying capital expenditures for products such as displays.

Europe to bounce back, but China still weak

Nevertheless, IHS sees some better times ahead. The firm said the Eurozone’s economic expansion will stabilize at 0.9% in 2020, after a growth slump this year, as low inflation and easing financial conditions continue to support consumer spending in the coming year.

Conversely, IHS said that China’s economy will continue its downward trend, slowing to 6.0% growth in 2020. The firm explained that the long deceleration is a result of an aging population and a sharp drop-off in productivity growth. Even more pessimistically, IHS Markit predicts China’s growth rate will slide further in 2021 unless the government enacts a more aggressive stimulus program.

Some other IHS predictions:

  • Japanese real GDP will remain weak, expanding 0.3% in 2020.
  • Emerging market growth will continue to be lackluster in 2020. According to IHS, the simmering U.S-China trade dispute and slow economic growth in that region will likely result in slow economic growth next year. Commodity prices continue to look soft in the first half of 2020, with prices stabilizing in the second half of 2020.
  • Global inflation will remain subdued at 2.7% next year.
  • The global monetary easing cycle will likely come to an end in 2020. According to IHS, the three reductions in the federal funds rate by the U.S. Federal Reserve are not likely to occur next year as economic conditions slowly improve.