Global Economic Forecast Q1 2020 Analysis

GLOBAL ECONOMIC FORECASTS: Q1 2020
February 2020
Report closing date: February 10, 2020

Global Outlook
• Global Baseline Outlook
• Global Forecasts: GDP Growth, Inflation, Interest Rate
• Global Risks
The US
China
India
Japan
The Eurozone
The UK
Russia
Brazil
Notes
February, 2020 Global Economic Forecasts: Q1 2020
GLOBAL OUTLOOK
Global Baseline Outlook

• Our baseline global GDP growth forecast has Global Real GDP Growth Baseline Forecast
remained stable since Q4 2019 at around 3% in 0 2 4 6 8
%
2020 (similar to 2019), improving slightly to 3.2%
growth in 2021. This reflects offsetting effects of World 3.0
improvements in the US and Japan outlooks, countered 2014-2018 average
by a worsening outlook for The Eurozone and India. Advanced
2019
1.4 2020
• Positive factors in the outlook remain above average Economies 2021
2022
consumer confidence in key economies, supportive Developing
4.2
monetary policy and low financial system stress. and Emerging
Economies
• Negative factors for the outlook include ongoing
geopolitical and trade war risks, declining business US 1.7
confidence, high corporate debt levels in key

economies, and uncertainty surrounding the recent 1.1
Eurozone
coronavirus outbreak in China.
• The January 2020 US-China phase one trade deal has the
China 5.8
risks and uncertainty surrounding a trade-war
escalation since the end of 2019. On the other hand, the
%
recent coronavirus outbreak in China may easily cut 0.1- 0 2 4 6 8
0.3 off our 2020 global GDP growth forecast once more Source: Euromonitor International Macro Model
precise data about its impact in Q1 is available. There is a
significant risk of a more persistent outbreak, spilling
over into a downturn in consumer spending, business
investment and production.
© Euromonitor International 3
GLOBAL OUTLOOK
Real GDP Annual Growth Forecasts and Revisions from Last Quarter, AE
(%, percentage points)
Country/Region 2019 2020 2021 2022 2023-2027 2020 2021
revision revision
Advanced Economies 1.7 1.4 1.5 1.5 1.5 0.0 0.0
USA 2.3 1.7 1.6 1.6 1.6 0.2 0.1

Canada 1.6 1.6 1.7 1.7 1.7 0.2 0.0
Eurozone 1.2 1.1 1.2 1.3 1.2 -0.2 -0.1
Germany 0.5 0.7 1.1 1.1 1.0 -0.3 -0.1
France 1.3 1.1 1.2 1.3 1.3 -0.1 0.0
Italy 0.1 0.4 0.5 0.7 0.6 0.1 0.0
Spain 2.0 1.5 1.5 1.5 1.2 -0.5 -0.2
UK 1.3 1.1 1.3 1.4 1.5 -0.2 -0.1
Japan 1.1 0.6 0.7 0.5 0.6 0.3 0.1
South Korea 1.9 2.0 2.1 2.3 2.2 -0.2 -0.1
GLOBAL OUTLOOK
Real GDP Annual Growth Forecasts and Revisions from Last Quarter, EMDE
(%, percentage points)
Country/Region 2019 2020 2021 2022 2023-2027 2020 2021
revision revision
Emerging and Developing

4.0 4.2 4.5 4.5 4.4 -0.2 0.0
Economies
China 6.2 5.8 5.6 5.4 4.9 0.1 0.0

India 5.0 5.8 6.4 6.4 6.1 -0.8 -0.5
Indonesia 5.0 5.0 5.1 5.2 5.0 0.0 0.0
Brazil 1.0 2.1 2.3 2.3 2.4 0.4 0.2
Mexico 0.0 0.9 1.5 2.0 2.3 -0.3 -0.2
Russia 1.1 1.7 1.6 1.5 1.5 0.2 0.1
Turkey 0.0 2.5 3.1 3.4 3.2 0.9 0.1
GLOBAL OUTLOOK
Inflation Quarterly Forecasts, %
Country/Region 2019 2020 2021 2022 2023-2027
Advanced Economies 1.4 1.6 1.7 1.8 1.9
USA 1.8 2.1 2.0 2.0 2.0

Eurozone 1.2 1.2 1.4 1.6 1.7
Germany 1.4 1.3 1.5 1.6 1.8
UK 1.8 1.7 1.9 2.0 2.0
Japan 0.6 1.0 0.9 0.9 1.0
Emerging and Developing Economies 2.7 3.8 3.8 3.3 3.2
China 2.7 2.8 2.5 2.4 2.5

India 3.3 4.0 4.3 4.4 4.4
Brazil 3.7 3.7 3.8 3.8 3.8
Russia 4.6 3.8 3.8 3.8 3.8
Note: Orange color indicates inflation below long-term 2023-2027 target. Blue color indicates inflation above long-term 2023-2037 target.
GLOBAL OUTLOOK
Central Bank Interest Rate Quarterly Forecasts

Advanced Economies Developing and Emerging Countries
% % % %
3 3 8 8
7 7
2 2 6 6
1.7 5 5
5.2
1 US 1 4 4
Eurozone 4.2
3 India 3
0.0 China
0 0 2 2
2017 2018 2019 2020 2021 2022 2023 2024 1 2017 2018 2019 2020 2021 2022 2023 2024 1
-1 -1 0 0
% % % %
3 3 16 16
2017 2018 2019 2020 2021 2022 2023 2024 14 2017 2018 2019 2020 2021 2022 2023 2024 14
2 UK 2 12 12
Japan Brazil
10 Russia 10
1 0.8 1 8 6.6 8
6 6
0 0 4 5.1 4
-0.1
2 2
-1 -1 0 0
Source: Euromonitor International Macro Model Source: Euromonitor International Macro Model
GLOBAL OUTLOOK
Global Risks
Probability, %
• The recent phase one US-China trade deal implies a significant 30
reduction in the probability of the All-Out US-China War
Scenario, though risks of re-escalating trade tensions remain. 27
• The coronavirus outbreak early in 2020 and the risks of a more No-Deal Brexit
prolonged impact on China and the global economy have caused 24
an increase in the probabilities assigned to the Global Downturn, US-China All-Out Trade War
Emerging Markets Slowdown, China Hard Landing and Global 21
Crisis Scenarios, despite the lower US-China trade tensions. Emerging Markets Slowdown
• The UK exited the EU in January 2020, entering a transition 18
period. However, the strong election victory of the pro-Hard
Brexit Conservatives has raised the probability of a No-Deal 15
Global Downturn Disorderly
Brexit at the end of the transition, in Q1 2021. No-Deal
Brexit 12
China Hard Landing
9
Decreasing probability Eurozone Recession
Unchanged probability Global Trade War 6
Eurozone Debt Crisis
Increasing probability 3
Global Crisis Korean Conflict
* Impact is measured as world GDP
change over 3 years compared to 0
baseline scenario, in percentage points -12 -10 -8 -6 -4 -2 0
GDP Impact, % *
GLOBAL OUTLOOK
Global Risk Index Scores and Rankings

Euromonitor International Global Risk Index, February 2020
SCENARIO GLOBAL RISK INDEX GLOBAL GDP IMPACT, % PROBABILITY, %
Global Downturn 2.7 4.9 16.3

Emerging Markets Slowdown 1.6 2.8 17.3
Global Crisis 1.4 10.4 4.0
China Hard Landing 0.8 2.3 10.8
Eurozone Recession 0.6 2.3 8.3
US-China All-Out Trade War 0.5 0.6 23.25
Disorderly No-Deal Brexit 0.4 1.2 10.0
Source: Euromonitor International Macro Model
Note: Global Risk Index ranks scenarios by the expected global GDP impact,
calculated as the 3-year cumulative global real GDP impact of the scenario multiplied by its 1-year probability, relative to the average global downside risks occurence
probability. The Index is based on 58 world’s major economies (representing 90% of global GDP at PPP).
THE US
General Outlook
2020 Q1 Forecast 2019 2020 2021 2022 2023-2027 2020 2021

revision revision
Real GDP Growth (%) 2.3 1.7 1.6 1.6 1.6 0.2 0.1
Inflation (%) 1.8 2.1 2.0 2.0 2.0 0.1 0.0
Federal Funds Rate (%) 2.2 1.6 1.6 1.8 2.4 0.0 0.0
• The US economy has continued to grow faster than its long-term trend • Negative factors include ongoing risks
in 2019, mainly supported by robust employment and consumer of rising trade tensions with China or
spending growth. Manufacturing and business investment suffered from the EU, negative effects of population
slower global trade growth and significant uncertainty related to the risks of ageing on labour force growth and
a US-China trade war escalation. slow labour productivity growth. The
• GDP growth is expected at 1.4-2% in 2020, followed by 1.2-2% growth last two factors contribute to a low
long-term potential output growth
in 2021.
rate of 1.1-2.1%.
• Positive factors in the outlook include above average private sector
• Baseline forecast one-year ahead
confidence and strong disposable income growth which should continue to
probability: 20-30%.
sustain consumption growth in 2020. The signing of a phase one US-China
trade deal in January 2020, has reduced trade related uncertainty.
THE US
Main Pessimistic and Optimistic Scenarios
US Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

% %
4 4
• Disappointing corporate • The initial China-US
2019 2020 2021 2022
3 3
profits lead to declining trade agreement is
stock market prices. In expanded to more
2 2 combination with goods, reversing the
increasing concerns tariffs that are still
1 1 about the spread of present.
coronavirus and • The impact of
0 0 renewed US-China trade
coronavirus on global
Euromonitor baseline tensions, this causes a
Optimistic scenario
demand is minimal, and
-1 -1 decline in business and
Pessimistic scenario together with the
Major Downturn consumer confidence. improving trade
-2 -2
• Business investment and environment this pushes
employment growth up business confidence,
decline, wages stagnate, investment and
• The same factors as in the main pessimistic scenario and consumer spending manufacturing output.
can lead to a contraction in business investment and growth declines closer • GDP growth increases
employment, a more significant stock market to 1%.
to 1.9-2.5% in 2020.
correction, and increasing financial market risk premia. • GDP growth declines
In a Major Downturn Scenario, Consumer spending • Probability: 15-20% at
to 0.8-1.4% in 2020.
a one-year horizon.
growth declines close to zero. GDP growth declines to
• Probability: 20-25% at
0.2-1%.
a one-year horizon.
• Probability: 15-20% at a one-year horizon in 2020.
THE US
Global Forecast Risks (1)

• In January 2020 the US and China signed a phase one US Global Risks Scenarios in 2020 Q1
trade deal, reducing the current tensions and stopping Real GDP Growth Unemployment Rate
further tariff increases in the short-term. In particular
the previously planned December tariff increases have
been avoided. China has promised to buy more US
agricultural products, provide stronger protection for US
intellectual property in China and avoid competitive
exchange rate devaluations.
• The deal maintains US tariffs on around 360 billion USD of
Inflation Interest Rate
CN imports, though reducing them by 50% to 7.5% on 120
billion USD of that (leaving them at 25% on the rest).
There is also an enforcement mechanism formalizing the
ability of the US or China to impose new tariffs if they
detect violations of the trade deal.
• Risks of an all-out US-China trade war have declined
with the recent deal. Nevertheless, US-China relations
remain tense with significant continuing trade war Euromonitor Baseline
escalation risk. We have reduced the probability of the Global Downturn: 2020 Q2
US-CN Trade War: 2020 Q2
All-Out US-China Trade War scenario to 23% over a one-
year horizon. In this scenario the US economy’s growth
declines to 1.2-1.8% in 2020 and to 1-1.7% in 2021.
THE US

• Ongoing geopolitical risks (e.g. from Iran) and US Global Risks Scenarios in 2020 Q1
risks of a more significant spread of the Real GDP Growth Unemployment Rate
coronavirus outbreak globally have led to an
increase in our estimate of the risks of a Global
Downturn Scenario despite the lower US-China
trade tensions.
• In a global downturn, worsening US-Iran tensions or
a more general spread of the coronavirus would
spill-over into significant drops in global private
sector sentiment and in risky asset prices. We assign
this scenario around 16% probability over a one-
year horizon. A global downturn starting in Q2 2020
would push US GDP growth in 2020 close to zero,
followed by slightly negative GDP growth in 2021.
Euromonitor Baseline
Global Downturn: 2020 Q2
THE US
Short-Term Economic Activity

• Output increased at an annual rate of 2.1% in the US Monthly Economic Activity Indicators, y-o-y Growth
last quarter of 2019, according to preliminary % %
8 8
estimates. The initial Q4 results continue to show 2015 2016 2017 2018 2019 2020
6 6
5.1
above average growth in consumption and positive 4 4
growth in residential investment, countered by 2 2
declining business investment. 0 0
-2 -1.2 -2
• Monthly indicators highlight the effects of the global
-4 Real retail sales -4
manufacturing slowdown in the US, with industrial Real retail sales average growth 2015-2019
-6 Industrial production -6
production contracting throughout 2019. In contrast Industrial production average growth 2015-2019
-8 -8
real retail sales have increased by more than 2% year- Source: Euromonitor International from national statistics
on-year in the 2nd half of 2019.
US Consumer and Business Confidence Indices
• Above average private sector confidence remains a Index Index
positive for the US economy, though business 3
2015 2016 2017 2018 2019 2020
3
confidence has declined since 2018, with the end of

2 2
the boost from tax cuts and a worsening global trade 1.4
outlook. 1 1.2 1
• Consumer sentiment fell in mid-2019, but it has 0 0
rebounded towards the end of the year. It is still Small business optimism
-1 -1
moderately above long-term historic averages. Small Consumer sentiment
business sentiment has declined relative to 2018, but -2 -2

Source: Euromonitor International from University of Michigan and NFIB
it remains significantly above long-term average. Note: values above 0 indicate confidence above long term average
THE US
Consumption and Business Investment (1)

• Consumption growth for 2019 was 2.6%, US Real Consumption and Disposable Income, y-o-y Growth
though it has started slowing towards the % %
6 6
end of the year. Growth is estimated to have 2014 2015 2016 2017 2018 2019 2020
declined to a 1.8% annual rate in Q4 2019.
Consumer spending is backed by low 4 4
unemployment risk and strong real 2.9

2.6
disposable income growth, itself a product of 2 1.9 2
employment growth of 1.5-2% annually and 1.7
moderate wage growth.
0 0
• The unemployment rate was just 3.5% at the
Consumption long-term trend
end of 2019 and is expected to stay around -2 Real private consumption -2
3.7% in 2020. However, year-on-year wage Real disposable personal income
Real compensation per hour, business sector
growth declined to just 0.6% in real terms in Private employment, non-farm
-4 -4
December 2019.
Source: Euromonitor International from FRED
• 2020-2021 are likely to see a decline in
employment and disposable income
growth, cutting consumption growth
towards 1.7-2.1% annually.
THE US
Consumption and Business Investment (2)

• Business fixed investment has barely US Real Fixed Business Investment, y-o-y Growth
% %
increased over the last year and contracted 15 15
at the end of 2019, despite above average 2015 2016 2017 2018 2019 2020
business confidence and low interest rates. 10 10

7.7
This in large part reflects a worsening global
5 5
trade environment, fears of a worsening trade 1.4
1.0
war with China and potentially excessive 0 0
investment rates in 2018 following the tax cuts.
-5 -5
• The decline in growth has been especially -6.7
notable in business structures and business -10 -10
Business fixed investment
equipment investment. Other forms of business Business equipment investment
investment that are less sensitive to global -15 Business structures investment -15
Intellectual property/R&D investment
trade such as research and development have -20 -20
continued a solid expansion. Source: Euromonitor International from FRED
• Growth in total business fixed investment in

2020 is likely to stay within a 0-1.5% range.
THE US
Monetary Policy and Financial Markets (1)

• The Federal reserve maintained its policy US Interest Rates
% %
rate at around 1.6% in January 2020. The 7 7
5-year adjustable rate mortgage
Fed’s statements highlighted ongoing 10-year treasury bond yield
6 30-year fixed rate mortgage 6
strength in labour market, combined with
Corporate AAA bond yield
moderate consumer spending growth 5 Corporate BBB bond yield 5
(compared to previous assessment of strong
spending growth). This contrasts with weak 4 4
3.6
business investment and exports growth. 3.3
3 3.1 3
• The Fed also highlighted financial market 2.5
2 2
inflation expectations below 2% as leaving 1.8
room for continued loose monetary policy. 1 1
2015 2016 2017 2018 2019 2020
• US monetary policy is likely to keep short
0 0
term interest rates at around 1.6% in Source: Euromonitor International from FRED
Note: Average yield to maturities and mortgage rates. Corporate bond yields
2020-2021, increasing towards 2-2.5% based on BAML bond indices.
after 2022. There are growing concerns that
with low interest rates expected to continue • The headline US 10-year government bond yield has
in the long-term, US monetary policy has declined by around 1.2 percentage points since the 3 rd
limited room to fight a downturn. quarter of 2018, with other private sector interest rates
• The Fed will also continue supporting short- showing similar declines. Interest rates have stabilized after
term debt markets with short-term asset mid-2019, at levels close to those of 2015-2016. They are
purchases following turbulence in those likely to remain close to current levels in 2020 under our
markets towards the end of 2019. baseline outlook.
THE US
Monetary Policy and Financial Markets (2)

• US household debt has continued to decline US Private Non-Financial Sector Debt to GDP
% %
relative to GDP in 2019 and is now 5 90 160
percentage points below its level in 2014. 2014 2015 2016 2017 2018 2019 2020
• Corporate debt has continued to rise and

80 75.0 155
is now more than 7 percentage points 75.0
above its 2014 level relative to GDP.
• Overall private sector non-financial debt 70 150

150.0
levels remain high, making the US
economy vulnerable to unexpected
financial shocks. 60 145
US private non-financial sector debt
US household debt
US non-financial corporation debt
0 0
Source: Euromonitor International from the BIS
CHINA
General Outlook (1)
2020 Q1 Forecast 2019 2020 2021 2022 2023-2027 2020 2021

revision revision
Real GDP Growth (%) 6.2 5.8 5.6 5.4 4.9 0.1 0.0
Inflation (%) 2.7 2.8 2.5 2.4 2.5 0.4 0.1
Central Bank Policy Rate
4.3 4.2 4.2 4.2 4.3 -0.1 -0.1
(%)
• China’s economy got a boost in January 2020 from the • The government has also encouraged a
signing of a phase one trade deal with the US, avoiding loosening of credit standards for small and
planned tariff increases and avoiding for now any further medium enterprises, with a targeted 30%
trade war escalation. This came against a background of lending increase in this sector.
an ongoing mostly domestically driven slowdown in • The coronavirus outbreak in January 2020
growth towards 5-6%. GDP growth for 2020 is expected to complicates the picture, making it more
reach 5.3-6.1%, followed by 5.1-6% growth in 2021.
likely for 2020 GDP growth to fall within
• Towards end of December, China’s government announced the lower end of the range above, closer to
further measures to boost private sector firms (now 5%. A spread of the virus to other major cities
accounting for 60% of Chinese GDP), including opening of beyond Wuhan could significantly dampen
some finance, telecoms, transport and energy sectors to spending on consumer services (e.g.
private investment and further improvement of access to entertainment, restaurants) as well as cutting
bonds and equity financing. tourism/travel spending.
CHINA
General Outlook (2)
China Real GDP Growth Forecast • Uncertainty around the baseline outlook has also
% % increased and is more skewed to the downside due to
8 8
2019 2020 2021 2022
the coronavirus outbreak.
7 7
• There is likely to be a substitution of online consumer
6 6
purchases for physical store purchases that would
5 5 cushion the coronavirus’ effect on retail sales. Also, there
4 4
is likely to be substitution of holidays now towards
holidays later in the year or towards spending on
3 3
consumer durable goods. Finally, any signs of a
Euromonitor baseline
2 Optimistic scenario 2 potentially significant decline in China’s 2020 GDP
Pessimistic scenario growth are likely to trigger new government fiscal and
1 Major Downturn 1
credit stimulus measures.
0 0
Source: Euromonitor International Macro Model • Nevertheless, Chinese retail sales volumes annual growth
rate could decline in the first quarter of 2020 from 5-6%
to around 2-3%.
• Baseline forecast one-year ahead probability: 20-30%.
CHINA
China Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

% %
8 8
2019 2020 2021 2022
• A more prolonged • Weaker than expected
7 7 coronavirus epidemic effects of the coronavirus
6 6 may lead to more outbreak, further
persistent declines in progress on a China-US
5 5
consumer spending and trade deal and
4 4 industrial production government fiscal and
growth in 2020, credit stimulus measures
3 3
amplified by lower implemented
2 Optimistic scenario 2 private sector preventively in response
Pessimistic scenario confidence. to the coronavirus risks
1 Major Downturn 1
• GDP growth declines to boost consumer spending
0 0
4.7-5.4% in 2020. and business investment.
• Probability: 20-25% • GDP growth increases
to 6-6.6% in 2020.
over a one-year
• Similar factors as in our most likely pessimistic
horizon. • Probability: 15-20%
scenario may spill-over into significant declines in over a one-year
real estate prices and worse declines in private horizon.
sector confidence. In a Major Downturn Scenario
GDP growth falls to 3.7-4.6% in 2020.
• Probability: 15-20% over a one-year horizon.
CHINA

• The phase one China-US trade deal signed in January China Global Risks Scenarios in 2020 Q1
2020 has stopped further bilateral tariff increases for Real GDP Growth Unemployment Rate
now, though maintaining US tariffs on 360 billion
USD in Chinese imports.
• The reduction in trade tensions has led to a
reduction in the probability of an escalation into
an All-Out US-China Trade War to around 23%
over a one-year horizon. In such a scenario Chinese
GDP growth would decline to 5-5.7% in 2020 and
4.5-5.5% in 2021.
• The recent coronavirus outbreak in China has
increased the risks of both the Global Downturn
Scenario (now assigned a 16% probability at a
one-year horizon) and a China Hard Landing
Scenario (now assigned an 11% probability at a
one-year horizon).
China Hard Landing: 2020 Q2
Source: Euromonitor International from Euromonitor Macro Model
CHINA

• In a Global Downturn Scenario, the coronavirus China Global Risks Scenarios in 2020 Q1
outbreak spreads globally and leads to significant Real GDP Growth Unemployment Rate
drops in global demand growth and private sector
confidence, as well as rising financial risk premia.
China’s GDP growth would fall to 2.6-3.8% in 2020 and
1.3-2.7% in 2021.
• In the China Hard Landing Scenario, the coronavirus
impact is mostly limited to the Asia-Pacific region but
is more persistent and triggers worse declines in
private sector sentiment than under a major
downturn. output growth would decline to 3.1-4.2% in
2020 and 2.3-3.7% in 2021.
China Hard Landing: 2020 Q2
Source: Euromonitor International from Euromonitor Macro Model
CHINA
Economic Activity and Private Sector Sentiment (1)

• China’s official GDP growth in 2019 was 6.1%. China Economic Activity Monthly Indicators, y-o-y Growth
Q4 2019 GDP growth was 6% year-on-year. % %
12 12
This is in line with the ongoing Chinese 2015 2016 2017 2018 2019 2020
economic slowdown projections, with annual
10 10
GDP growth expected to decline towards 5%
by 2023-2024.
8 8
• The economy continued to shift towards
6.9
services, with a declining role for
6 6
manufacturing. Secondary Sector 5.3
(Industry/Construction) growth in 2019 was
4 4
5.7%, while tertiary sector (services mostly)
Industrial production
expanded by 6.9%. Services accounted for Real retail sales
2 2
53.9% of output in 2019, up from 53.3% in 2018
and responsible for almost 60% of growth.
Meanwhile Industry and construction accounted 0 0
Source: Euromonitor International from national statistics
for 39% of output in 2019.
• Industrial production year-on-year growth
improved to 6.9% in December from 6.2% in
November suggesting an ongoing rebound in IP. • Real retail sales growth has improved at the end of 2019
Growth for 2020 is expected to be 4.5-5.5%, but at around 5% it remains significantly below 2017-
though with strong downside risks from the 2018 growth rates.
coronavirus outbreak.
CHINA
Economic Activity and Private Sector Sentiment (2)

• Consumer confidence has been stable at China Standardized Confidence Indices
Index Index
significantly above average levels in
5 5
2019, though it is likely to take a major 2015 2016 2017 2018 2019 2020
hit if the coronavirus outbreak persists 4 4
and is not contained in Q1. Business 3.4
3 Business 3
confidence remains moderately below Consumer
historic average. 2 2
• The latest purchasing manager surveys from
1 1
January (a key indicator of short-term
economic activity) suggest only a modest 0 0
slowdown in the pace of economic growth
relative to December despite the -1 -1.1 -1
coronavirus outbreak. However, the

-2 -2
magnitude of the coronavirus’ economic Source: Euromonitor International from national statistics
impact over 2020 remains highly uncertain. Note: values above zero indicate confidence above long-term average
CHINA
Consumption and Investment

• Economic rebalancing continued in 2019 China Consumption, Investment, Savings and Current Account
with consumer spending approaching 40% % %
50 4
of GDP and the investment rate declining 2015 2016 2017 2018 2019
by 1.5 percentage points to 43.4%.
44.5
However, non-government academic research 43.4
45 3
estimates suggest China’s consumption to GDP
ratio could be closer to 47%, still significantly
below that of other economies but better 39.7
balanced than in official estimates. 40 2
• Consumption growth was 6% in 2019,

accounting for 57.8% of GDP growth. 1.0
35 Current account balance to GDP 1
Consumption growth likely declined at end of Consumer expenditure to GDP
2019 despite high consumer confidence, due Gross national savings to GDP
Total investment to GDP
to the negative effects of higher food prices
(with swine fever cutting pork meat supply). 0 0
Source: Euromonitor International from IFM
• Early 2020 is likely to see negative effects on
services consumption from the Coronavirus
epidemic, though for now the virus is expected
to be contained in its effects.
CHINA
Monetary Policy and Financial Markets

• Monetary policy has loosened in response to China Debt to GDP Ratios
% %
China’s slowdown. Recent monetary policy 60 300
easing (mostly in the form of banks’ reserves 54.6
requirement cuts) has pushed the average 52.4
50 261.5 250
borrowing cost to 5.7%, the lowest since mid-
2017. The coronavirus outbreak could cause a
40 200
further easing of monetary policy if its effects
persist beyond Q1. 154.5
30 150
• China’s debt levels have continued to
Non-financial sector debt
increase in 2019, maintaining high risks to 20 Non-financial corporations debt 100
financial stability. Business debt to GDP levels General government debt
Households debt
have remained stable after declining in 2017-
10 50
2018, but household and government debt have
2014 2015 2016 2017 2018 2019 2020
continued to rise from relatively low levels.
0 0
• Total Social Financing (a comprehensive Source: Euromonitor International from the BIS
measure including bonds and equity issues)
year-on-year growth remained at 10.7%
in December 2019, continuing to growth
faster than nominal GDP. On a positive
note, riskier shadow banking sector loans
declined by more than 10% in 2019.
INDIA
General Outlook
2019 2020 2021 2022 2023-2027 2020 2021

revision revision
Real GDP Growth (%) 5.0 5.8 6.4 6.4 6.1 -0.7 -0.4
Inflation (%) 3.3 4.0 4.3 4.4 4.4 -0.1 -0.1
Central Bank Rate 5.7 5.0 4.9 5.1 5.2 -0.2 -0.5
• India’s economic growth slowed slightly in Q3 2019, to • The budget proposals for 2020 indicate that the
4.7%, but is expected to recover in the first quarters of Indian government will concentrate on
2020. Real annual GDP growth is predicted to supporting economic growth rather than
accelerate to reach 5.8% in 2020 and will keep on maintaining fiscal discipline. The new budget
increasing to 6.4% in 2021. raises the budget deficit from 3.3% to 3.8%.
• While economic growth is predicted to accelerate, this • In contrast to other contributors to GDP during the
will be at a lower rate than previously forecast. It was last three quarters of 2019, exports decreased,
previously projected that GDP would grow by 6.5% by on average 1.6% each quarter, due to lower
in 2020, which has been reduced by 0.7 percentage demand, which was affected by trade issues.
points from Q4 2019 forecasts. These projections Government negotiations concerning a free trade
reflect lower consumption and investment growth than deal with the US might, however, restore export
previously` expected. growth in Q1 2020.
INDIA
Pessimistic and Optimistic Scenarios
India Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

% %
10 10 • In the pessimistic • If the planned reforms
2019 2020 2021 2022 scenario, government start to give noticeable
8 8 spending plans will not positive outcomes, the
deliver a sufficient boost personal income tax cut
6 6 to economic growth. will contribute to
• The adverse situation in consumers being willing
to spend more rather than
4 4 financial sector and lack
save, while a trade deal
of possibilities to borrow
Euromonitor baseline money will contribute to with the US will restore
2 Optimistic scenario 2 export growth.
Pessimistic scenario continues slowdown of
consumer spending. • The rise in bank deposit
0 0
• This would lead to insurance will increase
depositors’ confidence
4.9% GDP growth in
and increase bank
2020, 5.5% in 2021
funding.
and 6.2% in 2022. We
assign a probability over • This could lead to 6.6%
a 15-25% to such a GDP growth in 2020,
scenario over a one-year with a 7.3% rise in 2021.
horizon. We assign this scenario a
probability of 15-25%
over a one-year horizon.
INDIA
GDP and Components

• Fixed investment during 2019 reached its lowest point in for India Industrial Production Index, y-o-y Growth
years of 1.3% y-o-y growth in Q3 2019. Steep decline was % %
10 10
observed in telecommunications and pharmaceutical sectors. It is, 2016 2017 2018 2019 2020
8 8
however, expected that tax exemptions for new investment will
drive growth, with a 4% year-on-year increase predicted in 2020. 6 6
4 4
• One of the main reasons for the slowdown in growth in the Indian
economy was low consumption, which decreased by 4% in Q2 2 2
2019 compared with Q3 2018. Despite this negative trend and 0 0

increasing unemployment, the manufacturing sector shows signs -2 -2
of growing sales and an upsurge in the job market. It is predicted -3.8
-4 -4
that consumption will increase by 6.2% year-on-year in 2020.
-6 -6
Real Consumption and Investment, y-o-y Growth • External trade challenges contributed to industrial growth
% %
15 15 being sluggish during 2019. In July 2019, the industrial
2015 2016 2017 2018 2019 2020
production index saw the highest year-on-year growth for nine
12 12
months, at 4.9%, but in September it dropped to the lowest
9 9 point during the past three years, down by 4.3% year-on-
year. The contraction in the industrial production index was
6 6
5.1 caused by a significant decrease in automotive industry sales,
3 Private consumption 3 which dropped to a two-decade low, due to slower economic
Fixed investment 1.3
0 0
growth and more limited options for customers to get
Source: Euromonitor International from OECD automobile financing.
JAPAN
General Outlook
2019 2020 2021 2022 2023-2027 2020 2021

revision revision
Real GDP Growth (%) 1.1 0.6 0.7 0.5 0.6 0.3 0.1
Inflation (%) 0.6 1.0 0.9 0.9 1.0 -0.2 -0.3
BoJ Policy Rate (%) 0.0 0.0 0.0 0.0 0.6 0.0 0.0
• We upgraded our Japanese real GDP growth • Inflation is set to rise to 1.0% in 2020 and hover
forecast by 0.3 percentage points for 2020 and by around similar levels in the medium term –
0.1 percentage points for 2021. The change in remaining well-below the 2.0% target of the Bank
forecast is driven by the announcement of a 120 billion of Japan (BoJ). The sales tax will help to increase the
USD fiscal stimulus package from PM Abe which will be inflation rate from the previous year level. However,
implemented until March 2021. We expect the low inflation expectations continue to dampen any
stimulus package to give significant support for the progress achieved by the BoJ.
economy constrained by the negative impact of the • Later in the forecast period, we expect fiscal stimulus
recent sales tax increase and a weak external
effects to die out which led us to slightly downgrading
environment.
the forecasts for 2022 and 2023. In the medium term,
• Coronavirus will likely significantly dampen lack of productivity growth and continued ageing of
Japanese exports in Q1 2020 as China is the second- the country will continue to dampen the economic
largest trading partner of Japan. However, the effects growth even if these issues can be temporarily
should be temporary and only last in the first half of masked with fiscal stimulus.
2020.
JAPAN
Japan Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

% %
3 3
• In the pessimistic • In the optimistic scenario,
2019 2020 2021 2022
scenario, we expect the economic growth could
2 2 Japanese economy to rise to 1.3% in 2020. In
fall into a technical this scenario, the
1 1 recession in the second coronavirus’ spread is
half of 2020. Overall, stopped in Q1 and USD120
the economy would billion fiscal stimulus and
0 0
contract by 0.1% in expectations of the
2020 and grow by 0.1 in upcoming government
-1 Euromonitor baseline -1 2021. spending give a
Optimistic scenario
Pessimistic scenario • The main shocks to the considerable boost to the
-2 -2 economy.
economy come from an
extended and increasing • On top of that, sales tax hike
outbreak of coronavirus has a limited effect on
as well as strong reaction private consumption
of private consumption already in Q1 2020. We give
to sales tax hike. We give 10-15% probability to this
15-20% probability for scenario playing out,
this scenario to play out. reduced from the previous
quarter, due to additional
coronavirus risks.
JAPAN
Economic Activity
• Japan’s retail sales shot up substantially in Japan Industrial Production and Retail Sales, Growth
September 2019, just before the rise of Index Index
10 10
sales tax by 2 p.p. in October. On the other Retail Sales shot up in Japan just
before the introduction of a higher 8.9
hand, Industrial Production shows signs of sales tax rate in October 2019
5 5
slowing down since the end of 2018 due to
decrease in both, domestic and external
demands. The fiscal stimulus will be 0 0
welcomed by the industry side to reverse this

downward momentum which is happening -5 Real retail sales -5
-7.4
among the historic-low interest rates.
2017 2018 2019 2020
-10 -10
Japan Major Foreign Trade Partners, 2019 • China imported 18.7% of Japanese exports in 2019 and this
0% 50% 100% made China the second largest trading partner of Japan. Even
Export
though the trade tensions between China and the US eased (in
share 20.3 18.7 6.8 37.8 the beginning of February, China announced a reduction of
5.8 1.6 tariffs for the US imports as part of bilateral phase one trade
4.7 4.3
deal with the US) supporting the Japanese recovery too, the
US Taiwan India developments of coronavirus and closing of borders between
China Hong Kong, China Rest of the World the countries will have a negative impact for Japanese economy
South Korea Thailand
in the first two quarters of 2020. However, we expect trading
Source: Euromonitor International from Ministry of Finance and economic activity to rebound in the second half of the year.
JAPAN
Japan leads with controversial monetary policy decisions again

• The BoJ continues to face disinflationary Japan Interest Rates and Inflation
% %
pressures since the end of 2018. Even though, 0.4 2
the central bank continues with extra-loose 2017 2018 2019 2020
monetary policy, its stance has changed. 0.3
Long-term interest rate
1.5
Inflation
• Central bank governor Kuroda has expressed his 0.2 1
concern that ultralow yields on long-term bonds
(especially, longer than 10-years) could be 0.1 0.5
0.3
detrimental to economic growth. Ultralow long-
0 0
term yields could be depressing the private -0.025
spending and investments in the economy if -0.1 -0.5
Long-term Interest rates
economic actors perceive that economic troubles started moving higher while
-0.2 disinflationary trends continues -1
are expected to continue, signaled by ultra-low
yields for far away maturities. -0.3 -1.5
• Therefore, the BoJ will continue keeping Source: Euromonitor International from national statistics
ultralow yields on shorter-term bonds, but will

allow yields to rise on ultra-long-term bonds in a
bid to get the best of both worlds: ultra-easy
monetary policy but limiting pessimistic outlook
of investors and consumers coming from
extended low-yields in the future.
THE EUROZONE
General Outlook
Q1 2020 Forecast 2019 2020 2021 2022 2023-2027 2020 2021

revision revision
Real GDP Growth (%) 1.2 1.1 1.2 1.3 1.2 -0.2 -0.1
Inflation (%) 1.2 1.2 1.4 1.6 1.7 -0.2 -0.2
ECB Refinancing Rate (%) 0.0 0.0 0.0 0.2 0.9 0.0 0.0
• Eurozone Q4 2019 GDP year-on-year growth • GDP growth is expected to decline to 0.8-1.3% in 2020,
was just 1%, with overall 2019 growth of improving slightly to 0.8-1.6% growth in 2021. Domestic
1.2%. Consumer spending and the service sector demand is expected to grow slightly faster than GDP (in
have continued to support the economy, while 2020, with lower net exports reducing overall GDP growth.
business investment, exports and manufacturing • Employment growth is expected to decline towards around
have constrained growth.
0.5% annually over 2020-2022, compensated by labour
• Annual employment growth close to 1% has productivity growth rising towards 1%. Long term annual
reduced the unemployment rate to 7.4% the output growth in the 2020’s is expected to remain at 0.7-
lowest level since May 2008. However, this has 1.6%, due to an ageing population and slow labour
been countered by low labour productivity productivity growth.
growth barely above zero. • Baseline forecast one-year ahead probability: 20-30%.
THE EUROZONE
Eurozone Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

% %
3 3 • A worse than expected • Eurozone private
Euromonitor baseline global trade sector sentiment
Optimistic scenario environment, greater increases more than
Pessimistic scenario
2 2 uncertainty caused by expected, global
the coronavirus demand for Eurozone
outbreak, trade exports recovers more
1 1 tensions with the US or strongly and
Middle East conflict uncertainty related to
risks cause a more the coronavirus, the
0 0 significant slowdown Middle East or trade
in Eurozone growth. declines faster.
2019 2020 2021 2022 • Eurozone GDP • Eurozone GDP
-1 -1 growth declines to growth increases to
Source: Euromonitor International Macro Model 0.1-0.7% in 2020. 1.2-1.7% in 2020.
• Probability: 20-25% • Probability: 15-20%
over a one-year over a one-year
horizon. horizon.
THE EUROZONE
Short-Term Economic Activity and Business Environment (1)

• Eurozone economic sentiment has Eurozone Economic Sentiment Indices
Index Index
increased at the end of 2019, though 120 120
it remains barely above the long-term Eurozone economic sentiment
115 Germany 115
average and significantly lower than 104.1
in 2018. Consumer confidence has 110 Spain 102.8 110
102.0
actually declined in recent months. 105 France 101.8 105
101.5
100 100
Italy
• Employment growth close to 1% in the 95 95
2nd half of 2019 has pushed The 2017 2018 2019 2020
90 90
Eurozone unemployment rate to 7.4% in Source: Euromonitor International from the European Commission
December 2019, the lowest since May Note: 100=Historical Average
2008 and down from 7.8% at end of

2018. Unemployment rates in major Eurozone Real Consumption, y-o-y Growth
% %
Eurozone economies ranged from 3.2% 4
2014 2015 2016 2017 2018 2019 2020
4
in Germany and 8.4% in France, to 9.8%
3 3
in Italy and 13.8% in Spain. Italy
Spain
2 Germany 1.8 2
1.5
1.4
• The relatively strong labour markets 1 1.4 1
France
and moderately above average 0.8
consumer confidence has sustained 0 0
Eurozone real consumption
consumption growth above trend, -1 -1
especially in Germany and Italy. Source: Euromonitor International from Eurostat
THE EUROZONE
Short-Term Economic Activity and Business Environment (2)

• The manufacturing sector has been at Eurozone Industrial Production, y-o-y Growth
% %
the centre of The Eurozone growth
8 8
slowdown in 2019. Eurozone industrial
Italy
production in December 2019 was 4.1%
below its level at the end of 2018.
4 Germany 3.8 4
• German industrial production has by Spain
around 5% year-on-year in the 2nd half of 0.4
0.2
2019 in large part due to the worsening
0 0
global trade environment. Italian
industrial production has also declined in France
the 2nd half of 2019. In contrast Spanish
-4 -4
industrial production increased by 1%
-5.7
year-on-year, with growth accelerating at
the end of the year. 2017 2018 2019 2020
-8 -8
Source: Euromonitor International from national statistics, Eurostat
THE EUROZONE
Eurozone Monetary Policy and Financial Markets (1)

• European Central Bank (ECB) monetary Eurozone 10-Year Government Bond Yields
policy has remained unchanged in recent % %
4 4
meetings. The ECB has restarted its
quantitative easing programme in November
3 Italy 3
2019 and expects to continue maintaining or
increasing its current financial asset holdings
2 2
and maintain low interest rates close to zero
Spain
until there are stronger signals of inflation 1.3
1 France 1
starting to rise towards 2%.
0.4
• Eurozone inflation is expected to remain at
0 0
around 1.2% in 2020, rising gradually Germany 0.0
-0.3
towards 1.7% by 2023. The low inflation
-1 -1
outlook provides the ECB with significant
2017 2018 2019 2020
space to maintain a loose monetary policy.
-2 -2
• The current baseline forecast sees the Source: Euromonitor International from Eurostat
ECB’s main interest rate only rising above
zero in 2022, staying below 1% over a five-
year horizon. However, there is a significant • Eurozone long-term interest rates declined in 2019,
risk of the current regime of 1-1.5% inflation indicating a combination of more pessimistic long-term
and short-term interest rates close to zero inflation expectations, higher financial markets’ uncertainty
continuing beyond 2022. and lower economic growth expectations.
THE EUROZONE

• Italian credit spreads relative to Italy Minus Germany 10-Year Government Bond Yields Spread
Germany have declined significantly % %
4 4
from more than 3% at the end of
2018 to just above 1.5% in January
2020. This is close to credit spread
3 3
levels in the first half of 2018 before
the creation of a Populist M5S and
League coalition government.
2 2
• The decline in Italian interest rates
1.5
relative to Germany mainly reflects the
less populist government coalition 1 1
established after the exit of the League
2017 2018 2019 2020
from power in the summer of 2019,
leading to lower risks to fiscal 0 0
sustainability and lower Italexit risks. Source: Euromonitor International from Eurostat
THE EUROZONE

• Eurozone private non-financial sector Eurozone Debt to GDP Ratios
% %
debt to GDP has remained stable since 200 200
2014, despite the continuation of 2014 2015 2016 2017 2018 2019 2020
ultra-low interest rates. Underlying the
165.5
overall stability, household debt to GDP
150 150
declined, while corporate debt to GDP
increased moderately.
107.8
100 100
• Corporate debt levels remain quite
high, exceeding GDP. This leaves The
Eurozone’s business sector vulnerable
57.8
to financial shocks. 50 50
Private non-financial sector debt
Non-financial corporations sector debt
Households sector debt
0 0
Source: Euromonitor International from the BIS
THE UK
General Outlook
Q1 2020 Forecast 2019 2020 2021 2022 2023-2027 2020 2021

revision revision
Real GDP Growth (%) 1.3 1.1 1.3 1.4 1.5 -0.1 -0.1
Inflation (%) 1.8 1.7 1.9 2.0 2.0 -0.2 -0.1
Bank Rate (%) 0.8 0.8 0.8 1.0 1.8 0.0 -0.2
• We have revised down our 2020 UK real GDP • The labour market continues to remain strong and
growth forecast by -0.1 percentage points to 1.1%. support GDP growth amid mounting political
Even though the UK is technically out of the EU and its uncertainty. However, wage growth already tops
governing institutions, the Brexit saga and uncertainty productivity growth which cannot be sustained for long
will continue throughout 2020 as the UK and the EU casting doubt on how viable current growth supported by
must negotiate future Free Trade Agreement (FTA) in private consumption is.
the transitory period running until the end of 2020. • Inflation hovers below to the Bank of England's target
• PM Johnson passed a bill to prohibit the UK level of 2.0%. However, the situation is expected to
government from asking for an extension for the improve if some of the Brexit-related political uncertainty
transitory period setting the country on a binary path: gets resolved. In the most recent January MPC meeting, the
signing an FTA by the end of the year or crashing out governing board of the Bank of England decided to keep
of the EU single market without a deal and abiding by interest rates unchanged even amid disinflationary
the World Trade Organizations rules. pressures and slowing economic growth.
THE UK
UK Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

% %
3 3
2019 2020 2021 2022
• In the pessimistic • In the optimistic scenario,
scenario, the UK real economic growth picks
2 2 economy grows by 0.6% up and reaches 1.6% in
in 2020. In this case, 2020. The EU and the UK
investments decline on reach a preliminary FTA
1 1
the continued drop of during the year eliminating
business confidence as the long-lasting uncertainty
0 0 there are no clear which in turn improves
Euromonitor baseline breakthroughs of the business confidence.
Optimistic scenario
Pessimistic scenario Brexit uncertainty Investments pick up and due
-1 -1 surrounding the year. to tight labour market wage
• On top of that, labour growth improve considerably.
On top of high wage growth,
market starts to show
private consumption
cracks as unemployment
improves further.
stops declining and wage
growth slows weakening • We expect this scenario to
private consumption. play out with 10-15%
• We see this scenario probability due to low
probability of the Brexit
playing out with around
10-15% probability. negotiations concluding ahead
of the scheduled transitionary
period deadline.
THE UK
What happens if the transition period ends without an FTA deal?
UK Real GDP Growth Forecast in No-Deal Brexit Disorderly No-Deal Brexit

%
No-Deal Brexit Scenarios %
4 4 • This is the main/most- • This a worst-case No-Deal
2019 2020 2021 2022 likely No-Deal Brexit Brexit scenario.
2 2 scenario. • Trade relations with the EU
• Negotiations between the default to World Trade
0 0 EU and the UK break down Organization (WTO)
and the UK leaves the EU conditions.
-2 -2 without reaching a trade • Disruptions of trade at the
agreement during the border are more severe and
-4
-4
transition period. long-lasting than under the
No-Deal Brexit
Disorderly No-Deal Brexit • Trade relations with the EU main No-Deal Brexit
-6 -6 default to World Trade scenario.
Source: Euromonitor International Macro Model Organization (WTO) • The sensitivity of trade
conditions. flows to tariff increases is
• The level of UK GDP higher than expected.
declines by 2-5% below • UK real GDP declines by 5-
the baseline forecast over 9% below the baseline
a 5-year horizon. In 2021, forecast over a 5-year
this leads to real GDP horizon. In 2021, real GDP
growth of 0.3%. declines by 3.6%.
• We estimate a 20-30% • We estimate a 5-15%
probability for this probability for this scenario
scenario.
THE UK
Economic Activity and Private Sector Sentiment

• Private and Public consumption were the main drivers UK Real GDP Growth by Expenditure Component
of growth in Q3 2019. Private consumption continues to be % %
6 Stocks Private consumption 6
supported by strong labour market and rising wages even Investment Public consumption
Net Exports
though productivity gains are below the long-term average. 4 Real GDP growth 4
The government also increased its fiscal spending at the end 1.6
2 2
of 2019 and beginning of 2020 as long-term interest rates in
the UK fall below the GDP growth. 0 0
• Even amid vast political uncertainty surrounding the -2 -2

country, the economy shows some positive signs. 2017 2018 2019
-4 -4
Consumer confidence started slowly picking up from the Source: Euromonitor International from OECD
lows observed in the beginning of 2019 due to continued
strength of the labour market. However, business sector UK Consumer and Business Confidence,
remains cautious. Index Standardized Indices Index
2 2
2017 2018 2019 2020
• Business confidence continued its downward trend which is Business confidence
not expected to pick up much before the situation after the struggles to show positive
1 developments, but consumer 1
Brexit becomes clear. However, there were some positive confidence started recovering
developments improving the uncertainty surrounding the
separation from the EU: Johnson's Tories won a clear 0.0
0 0
majority in the parliament and the UK technically left the EU
which started the process of trade deal negotiations. Due to Consumer confidence -0.6
Business confidence
these developments, business confidence is expected to -1 -1
slightly rebound in the short-term. Note: Values above 0 indicate confidence above long term average
RUSSIA
Economic Activity Growth

• According to Rosstat estimates, annual GDP Russia Real GDP Growth by Expenditure Component
% %
rose by 1.3% in 2019, following a 2.2% 8 8
increase in 2018. The growth rates shown are Stocks Net Exports
Investment Consumption
higher than expected in our previous reports, due 6 6
Real GDP growth
primarily to more favourable GDP dynamics in Q3
4 4
and Q4, based on a revival in inventories in 1.6
comparison with the previous quarters. 2 2
• In terms of GDP structure by expenditure 0 0

components, growth in 2019 was constrained
mainly by a reduction of exports amid a -2 -2
slowdown in the global economy and an
-4 -4
agreement by OPEC+ to cut oil production, and 2017 2018 2019
slower investment growth, caused by the delayed -6 -6
implementation of several national infrastructure Source: Euromonitor International from national statistics
projects planned by the government.
• Amid the slowdown in investment, support for • In our baseline, we expect a minor acceleration in real
economic growth in 2019 was provided by GDP annual growth to about 1.6-1.7% over 2020-2021.
private consumption, which is also expected to This acceleration will depend to a significant extent on
help the economy in 2020, given improving growth in public spending, related to the implementation of
household income dynamics, including growth in national infrastructure projects.
real wages.
RUSSIA
Russia Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

% %
6 6
• The pessimistic scenario • An optimistic scenario
Optimistic scenario assumes a decline in the oil assumes that the oil price
4 4 price to USD35 per barrel in will reach USD80 per
the first half of 2020, and its barrel over the two-year
remaining close to this level forecast horizon. Despite
2 2
over the forecast period. The fiscal rule, which is
worsening of external expected to smooth over
0 0 conditions would cause an the influence of additional
accelerated capital outflow, incomes inflow to the
2019 2020 2021 2022 currency depreciation, a economy, this factor will
-2 -2 decline in business support business and
confidence and investment, consumer confidence, and
and a reduction in already investment activity relative
weak consumer demand. to the baseline scenario.
• Under this scenario, we • Under the stated
expect real GDP to stagnate conditions, real GDP is
over the 2020-2021 period. expected to grow by
We assign a 10% 2.8% in 2020 and 3.7% in
probability to this scenario 2021. This scenario is
over a one-year horizon. assigned a probability of
5-10% over a one-year
horizon.
RUSSIA
Production and Investment

• In Q4 2019, the upward trend in industrial output Russia Economic Activity Indicators, y-o-y Growth
% %
slowed to 1.7%, after 2.9% growth in both Q2 and Q3. 15 15
2018 2019 2020
• The largest boost to real GDP growth came from the 10 5.8 10
3.4
mining industry (3.0% year-on-year growth) and 5 2.1 5
manufacturing (2.2% year-on-year growth). 1.8
0.4
0 0
-1.7
• In Q3 2019, annual growth in fixed capital investment was Mining
-5 -5
0.8%, following 0.6% growth in Q2. The slight acceleration Manufacturing
Construction
in investment growth was mainly due to the growth in -10 Freight turnover -10
Agriculture
public spending as private sector investment declined. -15
Industrial production index
-15
Investment activity by enterprises was constrained by Source: Euromonitor International from national statistics
general macroeconomic uncertainty and continuing weak
consumer demand. Stagnation in investment growth is Russia Gross Fixed Capital Formation and
also evidenced by the situation in construction, which Construction Indicators, y-o-y Growth
% %
showed year-on-year growth of just 0.3% in 2019. 10 10
• Slow annual growth in agricultural output in H1 2019, of 5 5

0.8 0.6
1.1%, was followed by a stronger increase of 5.2% over the
0 0
July-November period.
Fixed capital investments
-5 Construction -5
• Over 2019, freight turnover grew by only 0.5%. Turnover
declined in the second half of the year, owing largely to a 2017 2018 2019 2020
-10 -10
contraction in coal and ferrous metal exports. Source: Euromonitor International from national statistics
RUSSIA
Inflation, Income and Consumption

• Annual inflation slowed in the latter part of 2019, from Russia Retail Trade and Real Wages, y-o-y Growth
% %
a peak in March 2019. Annual inflation for the year 12 12
stood at 4.6%. The main factors in the downward 2018 2019 2020
10 10
trend in consumer prices were a slight rise in the
8 Retail trade 8
value of the rouble since the beginning of the year, Real wage
6 6
and more than moderate domestic demand dynamics
holding back prices. 4 4
2.7
2 1.9 2
• Under current conditions, in our baseline forecast,
we expect annual inflation of about 3.8% over the 0 0
next two years. -2 -2

• In Q4 2019, real wages continued to rise, and, amid
falling inflation, grew by 2.4% over the year. Real Brent Oil Price and Ruble Exchange Rate Against US Dollar
household disposable income growth slowed down to USD per Barrel Ruble per USD
100 75
1.1% in Q4, after a 3.1% increase in Q3. Growth for the 2018 2019 2020
year was just 0.9%. 80 70
• After 0.9% growth in Q3 2019, retail trade turnover 65.9

60 65
growth accelerated to almost 2% in Q4, in response to 63.2
income growth, with moderate 1.6% growth for the 40 60
year as a whole. This is in general a reflection of Exchange rate
20 Crude oil (Europe Brent) spot price 55
favorable dynamics in real wages and income as well
as the greater propensity of households to save, given 0 0
the current economic situation. Source: Euromonitor International from national statistics
BRAZIL
General Outlook
2019 2020 2021 2022 2023-2027 2020 2021

revision revision
Real GDP Growth (%) 1.0 2.1 2.3 2.3 2.4 0.4 0.2
Inflation (%) 3.7 3.7 3.8 3.8 3.8 -0.3 -0.2
Interest Rate 6.0 4.5 5.0 5.7 6.6 -0.8 -1.0
• Favourable market conditions and monetary • Brazil's Central Bank is still maintaining
policy measures have resulted in a unprecedented stimulus policies and is maintaining its
moderately positive economic outlook for Brazil. all-time low interest rates. This is expected to increase
business investment and boost industrial output. Also, low
• Inflation is still low and is expected to remain interest rates may raise consumer spending on durable
well below the Central Bank's target of 4.25%. goods.
This is stimulating private consumption, which is
one of the main drivers of GDP growth, as • With gradual economic recovery, owing largely to a
consumers are more willing to spend both from combination of low inflation and low interest rates, real
savings and through borrowing. GDP growth forecasts have been upgraded. We expect real
GDP to grow by 2.1% in 2020 and by 2.3% in 2021.
BRAZIL
General Outlook (2)
• Economic growth has picked up recently and Brazil Real GDP Growth by Expenditure Component
even slightly exceeded expectations. % %
6 2017 2018 2019 6
• The main driver of this growth was a rebound
in private consumption. A historically low 4 1.2 4
inflation rate and a recovering labour market is
increasing real disposable income which 2 2
allow for increased spending by consumers. It is
0 0
steadily driving the economy, despite a
continued lack of consumer confidence. -2 -2
• Regardless of the unfavourable outlook in Latin
America, including political instability, foreign -4 -4
Stocks Private consumption
trade was another important factor in economic Investment Public consumption
-6 Net Exports -6
growth. Exports have been boosted by a low Real GDP growth
exchange rate. -8 -8
• Public consumption is shrinking noticeably Source: Euromonitor International from OECD
because of tight measures to control

government spending and enforce a healthy
fiscal balance. • Progress on structural reforms is improving business
• Inventory investment is subtracting from sentiment, which is reflected in increasing economic activity.
economic growth. However, capital formation is This has the potential to continue and have a spill-over effect
showing positive signs. This has been promoted on inventory investment, as expectations are optimistic
by renewed construction. regarding the stabilisation of growth.
BRAZIL
Brazil Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

% %
6 6
• The real weakens, causing • Inflation remains within
Optimistic scenario liquidity problems. target, boosting consumer
4
4 • The economic and spending.
political turmoil in Latin • The government’s
America reduces foreign measures aimed at
2 2 investment and foreign generating jobs, cutting
trade. labour costs and
• The economic recovery is stimulating investment
0 0 prove successful.
still fragile and dependent
2019 2020 2021 2022
on the continued • Low inflation allows the
-2 -2
progress of reforms. Lack Central Bank to keep
Source: Euromonitor International Macro Model of political will and interest rates low, helping
imprudent fiscal business to increase
measures might investment and output
jeopardise it. • In this case, real GDP
• Under this scenario, growth could reach 3.8%
real GDP growth could in 2021 and 2.8% in
reach 0.7% in 2021 and 2022.
1.8% in 2022. We assign • We assign a 10-15%
a probability of 10-15% probability to this
to this scenario over a scenario over a one-year
one-year horizon. horizon.
BRAZIL
Economic Activity and Sentiment of Private Sector

• The business sector is increasingly optimistic about Brazil Consumer and Business
the future of the economy as the government is actively Standardized Confidence Indices
Index Index
2 2
stimulating the market and incorporating long awaited 2017 2018 2019 2020
reforms, such as pension and tax system revisions. Business 1.2
1 Consumer 1
• On the other hand, consumer confidence is not
growing, with sentiment remaining negative. There
0 0
has, however, been some improvement, and, if inflation
continues to be low, the unemployment rate continues to -0.6
-1 -1
decline, and the government seeks to increase of Business in Brazil is much more
optimistic than consumers
minimum wage and create jobs, consumers may adopt a -2 -2
more optimistic outlook in the near future. Source: Euromonitor International from national statistics
Note: values above 0 indicate confidence above long term average
Brazil Industrial Production and Retail Sales, y-o-y Growth

• Industrial production has recently declined, due to
% %
12 12 shrinking employment and lower manufacturing
2017 2018 2019 2020
8 8
exports, but it is showing a positive trend overall.
Real retail sales growth is also picking up, in line with
4 4
2.4 positive trends in the market.
0 0
-1.9
• Solid economic conditions are being laid down
-4 -4 for boosting economic activity and for growth in
-8 Real retail sales -8 investment and sales. This might further support
-12 -12 GDP growth, as well as confidence among both
Source: Euromonitor International from national statistics domestic and foreign market players.
NOTES
Scope and Objectives

• Global Economic Forecasts quarterly Global
Outlook is a partner piece to Euromonitor
Macro Model, which is represented in Macro
Model dashboard.
• The Global Outlook is an explainer of

quarterly forecast updates of Macro Model.
The analysis is focused on quarterly macro
changes and what these mean to our view of
the likely, optimistic and pessimistic
scenarios for the global economy.
• Euromonitor International’s Macro Model

(EMM) is a quarterly forecast model for the
global economy.
• EMM is a global model, with countries

simultaneously interacting through trade and
aggregate demand spillovers. It currently
produces GDP, Unemployment, Inflation and
Interest Rate forecasts for 58 countries.
• Global Economic Forecasts quarterly Global Outlook focuses on
• The EMM forecasts are revised quarterly, world’s key economies and explains the latest macroeconomic
with some inter-quarter revisions for key changes in them, as well as the most up-to-date baseline,
economies. optimistic and pessimistic scenarios for these economies.
NOTES
Global Risk Scenario Descriptions
SCENARIO DESCRIPTION
Fears of escalating protectionist and populist policies and growing geopolitical tensions raise uncertainty levels and
Global Downturn
worsen sentiment in global financial markets and the private sector.
Rising financial markets risk aversion focused on emerging markets (EM). Greater pessimism about long-term EM
Emerging Markets Slowdown
growth. Greater protectionism and slower growth in global trade.
Global Crisis The global crisis scenario combines a severe global downturn with a Chinese hard landing and a Eurozone recession.
Growing geopolitical and EU break-up risks raise uncertainty and reduce investment. Significant deterioration in
Eurozone Recession
Eurozone credit markets and confidence indicators. Italy and Greece exit The Eurozone.
Lower private sector confidence, declining exports, a rising proportion of non-performing loans and greater than
China Hard Landing
expected costs of rebalancing from investment to consumption cause a sharp downturn in China’s economy.
US-China Trade War The US raises tariffs on all Chinese imports by 15-25 percentage points. China retaliates with similar tariff increases.
No-Deal Brexit UK-EU negotiations break down, and the UK leaves the EU in 2019 without making a trade deal.
Disorderly No-Deal Brexit This is a worst-case No-Deal Brexit scenario. Trade sensitivity and disruptions are more severe and long lasting.
Growing geopolitical and EU break-up risks raise uncertainty and reduce investment. Tensions in sovereign debt
Eurozone Crisis
markets cause turmoil in financial markets. Collapse in private sector confidence. Italy and Greece exit The Eurozone.
Nuclear fears lead to a US strike on North Korea. North Korea invades South Korea and strikes Japan. Fears of strikes
Korean Conflict
on the US or other Asian countries lead to a sell-off in financial markets and a slowdown.
US-China Trade War tariff increases and bilateral tariff increases between the US, Asia Pacific, the EU, Canada and
Global Trade War
Mexico.
NOTES
Definitions
 Forecast closing date: February 3, 2020

 All baseline forecasts (expected or most likely outcomes) are assigned a 20-30% probability unless stated otherwise.
 All most likely Pessimistic and Optimistic Scenarios are assigned a probability of 15-25% unless stated otherwise.
 All GDP and GDP components growth rates are in real (inflation adjusted) terms unless stated otherwise.
 All annual GDP and GDP component growth rates are for January-December calendar year unless stated otherwise.
 All quarterly GDP and GDP components growth rates are year-on-year unless stated otherwise.
CONTACT DETAILS
Aiste Navaityte
Senior Data Analyst, Economies and Consumers
Aiste.Navaityte@Euromonitor.com
Aleksej Baksajev, PhD

Data Scientist, Analytics
Aleksej.Baksajev@Euromonitor.com
Daniel Solomon, PhD

Senior Economist, Economies and Consumers
Daniel.Solomon@Euromonitor.com
Giedrius Stalenis
Consultant, Economies Finance and Trade
Giedrius.Stalenis@Euromonitor.com
Marija Aciene
Senior Data Analyst, Economies and Consumers
Marija.Aciene@Euromonitor.com

Global Economic Forecast Q1 2020 Analysis

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Global Economic Forecast Q1 2020 Analysis

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GLOBAL ECONOMIC FORECASTS: Q1 2020

Report closing date: February 10, 2020

Global Baseline Outlook

confidence, high corporate debt levels in key

Advanced Economies 1.7 1.4 1.5 1.5 1.5 0.0 0.0

USA 2.3 1.7 1.6 1.6 1.6 0.2 0.1

Emerging and Developing

China 6.2 5.8 5.6 5.4 4.9 0.1 0.0

Inflation Quarterly Forecasts, %

Country/Region 2019 2020 2021 2022 2023-2027

Advanced Economies 1.4 1.6 1.7 1.8 1.9

USA 1.8 2.1 2.0 2.0 2.0

Emerging and Developing Economies 2.7 3.8 3.8 3.3 3.2

China 2.7 2.8 2.5 2.4 2.5

Central Bank Interest Rate Quarterly Forecasts

Global Risk Index Scores and Rankings

SCENARIO GLOBAL RISK INDEX GLOBAL GDP IMPACT, % PROBABILITY, %

Global Downturn 2.7 4.9 16.3

2020 Q1 Forecast 2019 2020 2021 2022 2023-2027 2020 2021

Main Pessimistic and Optimistic Scenarios

US Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

Global Forecast Risks (1)

Global Forecast Risks (2)

Source: Euromonitor International Macro Model

Short-Term Economic Activity

confidence has declined since 2018, with the end of

• Consumer sentiment fell in mid-2019, but it has 0 0

business sentiment has declined relative to 2018, but -2 -2

Consumption and Business Investment (1)

unemployment risk and strong real 2.9

Consumption and Business Investment (2)

business confidence and low interest rates. 10 10

• Growth in total business fixed investment in

Monetary Policy and Financial Markets (1)

Monetary Policy and Financial Markets (2)

• Corporate debt has continued to rise and

• Overall private sector non-financial debt 70 150

General Outlook (1)

2020 Q1 Forecast 2019 2020 2021 2022 2023-2027 2020 2021

General Outlook (2)

Main Pessimistic and Optimistic Scenarios

China Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

Global Forecast Risks (1)

Source: Euromonitor International from Euromonitor Macro Model

Global Forecast Risks (2)

Source: Euromonitor International from Euromonitor Macro Model

Economic Activity and Private Sector Sentiment (1)

Economic Activity and Private Sector Sentiment (2)

coronavirus outbreak. However, the

Consumption and Investment

• Consumption growth was 6% in 2019,

Monetary Policy and Financial Markets

2019 2020 2021 2022 2023-2027 2020 2021

Pessimistic and Optimistic Scenarios

India Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

GDP and Components

2019 compared with Q3 2018. Despite this negative trend and 0 0

2019 2020 2021 2022 2023-2027 2020 2021

Pessimistic and Optimistic Scenarios

Japan Real GDP Growth Forecast Pessimistic scenario Optimistic scenario

welcomed by the industry side to reverse this

Japan leads with controversial monetary policy decisions again

ultralow yields on shorter-term bonds, but will

Q1 2020 Forecast 2019 2020 2021 2022 2023-2027 2020 2021