Keynote: Outlook 2020 – Economical and geopolitical developments

Looking at the prospects for 2020, two key considerations are currently shaping our view of the general macroeconomic outlook: central bank policy and the potential for geopolitical uncertainty throughout the year.

Taking the first of these, central bank policy, the different experiences of 2018 and 2019 show how crucial this will be in 2020. In 2018, investors feared that central bank policy would be tightened, and this resulted in a tough year for markets globally. However, at the outset of 2019, central banks pivoted and policy became more accommodative resulting in a much more positive year. With respect to 2020, it seems likely that rates will remain on hold and unlikely that they will be raised. Indeed, the possibility of further cuts should not be ruled out, especially in the US where political pressure on the Fed may grow throughout the year.

With respect to the geopolitical outlook, there are three key areas from which volatility and uncertainty could emerge. First, the US presidential campaign and election. Things could not be better for Trump right now; the Democrats are weak and disorganized, and he has successfully dealt with the threat of impeachment. However, if things get better for the Democrats and more difficult for Trump, we might expect him to become more outspoken and bellicose – for example, he may seek to energize those elements of his base that relish confrontation with China and Europe.

Second, Brexit is still not over, and this may create Sterling volatility if we begin to approach January 1^st 2021 without a trade agreement in sight. Both the UK and the EU are in very tough positions in this respect and market nervousness is likely to return at some point. Third, the situation in Italy should be a cause of some concern. The current government is highly unstable and could break up at any time, bringing to new elections. The prospect of a Lega-led administration would raise fears of Italexit and likely lead to a rapid widening of Italian spreads.

Aside from these perennial topics of central bank policy and potential political uncertainty, the coronavirus outbreak is casting a shadow over the macroeconomic outlook for the early part of 2020, at least. The extent of the impact is so far unclear, but we should keep in mind that the Chinese economy represents around 30% of global economic growth and Q1 will thus likely be very weak – the impact on the remainder of 2020 is uncertain, but it seems there are good reasons to think that the worst of the outbreak may now be over.

Overall, we expect a constructive year in 2020. While it certainly won’t be as spectacular as 2019, we are cautiously positive for the months ahead.

Join Martin Lück, BlackRock’s Chief Investment Strategist for Germany, Austria and Eastern Europe at the Derivatives Forum Frankfurt 2020, on February 27, for a full day of discussions, thought leadership insights, industry debates and networking with peers.