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A golden bull; image used for HSBC Malaysia Liquid State of the Economy 2020 article

State of the Economy 2020

While there is renewed optimism for the global economy in the year ahead, there also lies uncertainty. So proceed with caution.

Another decade has come and gone. As we usher in the 2020s, many of us are probably hoping for a strong start and smooth sailing this year after a choppy 2019 on the global economic front disrupted by trade disputes.1

The good news is: there is consensus amongst experts globally that fortunes for the year ahead will take a turn for the better. But, with some caveats.

Here are some expert expectations for 2020...

HSBC Global Asset Management:

Our outlook for 2020 is relatively favourable. We anticipate slow economic growth, low inflation and accommodative policies^. However, the outlook remains vulnerable to shocks in an age of uncertainty.2

BlackRock Investment:

Growth should edge higher in 2020, limiting recession risks. The main risk to our outlook is a gradual change in the macro regime. The other risk is the escalation of global trade disputes, particularly between the US and China, which could undermine market sentiment.3

Morgan Stanley:

Heading into 2020, the winds could shift, setting up the global economy for a third "mini-cycle recovery" in this decade-long expansion. But, if additional tariffs are enacted as a result of trade disputes, we think global growth could decelerate further.1

So, as you navigate your way through 2020 and plan what to do with your money, here are some key points to ponder...

2020 Forecast

3.3% Global Growth by the International Monetary Fund*

2.5% Global Growth by the World Bank#

4.8% Malaysia Growth by the Ministry of Finance Malaysia5


Stabilising global growth

HSBC Global Asset Management's analysis suggests that global growth has moved back to a relatively modest pace after a slow 2019.2 Continued low global inflation has allowed governments to focus on supporting growth, while global labour markets have remained resilient and consumer spending has held up well, strengthened by continued employment and income growth.2 Meanwhile, 20 central banks have eased monetary policy over the past

12 months and this synchronous easing is expected to continue, which should support growth – especially if trade tensions subside.1

US on solid footing

Although economists forecast an average year for the US, a strong job market coupled with low interest rates should keep the US economy on a solid footing.1 Unemployment rate has held at or below 4% for nearly two years and job creation is still positive.6 Moderate inflation and steady wage growth are translating into consumers who are working, earning and spending, which should be enough to sustain growth at a rate close to the country/region's long-term potential.6

In 2020, US fiscal and monetary policy will remain accommodative. Low interest rates and deep budget deficits will combine to provide stimulus.6 According to HSBC Global Asset Management, policy easing by the Federal Reserve and robust consumer spending should prevent US growth from dropping below its long-term trend.2

Emerging markets take the lead

Emerging markets and developing economies are expected to take the lead in driving growth in 2020 with advanced economies forecasted to grow at a tepid pace this year.7 In China, more easing measures are likely to shore up confidence and offset the COVID-19 epidemic impact. Despite the short term growth hit, a recovery is likely amid some restocking demand once the coronavirus is seen as contained^.

Meanwhile, HSBC Global Asset Management expects India to register a modest growth recovery supported by monetary easing and tax cuts.2 This view is supported by other economists who predict India's GDP growth to reach 6.3% in 2020 and 6.8% in 2021 – up from an estimated 5% in 2019.1 Moderate growth in China and the US, plus domestic monetary and fiscal policy support should support some growth recovery in other emerging markets in Asia.2 Malaysia's Economic Outlook 2020 Report, for example, forecasted an improved 5.3% growth for the Asean-5 – comprising the region's five largest economies of Malaysia, Singapore, Indonesia, Thailand and the Philippines – supported by private consumption, investment, exports and robust domestic demand.7

Signs of life in Eurozone

Growth in Europe continues to be sluggish, but economists see signs of life as less uncertainty about trade, policy and Brexit unleash pent-up demand.1 HSBC Global Asset Management believes a gradual improvement in emerging markets should help European exports, while the European Central Bank's policy easing should also support domestic demand, leading to a modest recovery, which in turn would also benefit the United Kingdom.2

Insider Viewpoint##

Twenty-nineteen saw dramatic surges in both equities and bonds. Big swings in markets caused by political events favoured active investors with foresight. Central bank rate cuts rewarded protective, loyal investors with bond investments. But mere observers with minimal participation missed some golden opportunities.

Looking ahead in 2020, investment banks are generally optimistic about equities, and point to the markets that are more solid in fundamentals. But the outlook on the Malaysian market remains defensive at this stage with Malaysia's economy projected to expand at a relatively moderate pace and private consumption moderating after years of strong performance.

How can investors with different personalities create wealth in 2020?

Observers who are careful thinkers should consider a systematic monthly investment plan to invest regularly in equities and funds. This enables wealth to grow in the long run, in a balanced way.

Protective loyalists who always show tolerance and hope for stability should reconsider the source of investment income. As central banks gradually lower rates, bond yields have fallen creating difficulties in earning high income from bonds. So it may be wise to consider other sources of investment income.

Active achievers who tend to seek maximum returns may want to build-in downside protection as volatility remains this year. Downside protection leaves active achievers with more breathing space to navigate any adverse environment.


Jon Chivers, Head of Wealth,

Wealth and Personal Banking, HSBC Malaysia


Trade wars

Despite the expected signing of the phase-one trade deal between the United States and China in January that promises a pause to the two-year trade war between the world's two biggest economies, the threat of trade wars is far from over.4 While the phase-one deal may cut import tariffs on more than $100bn of Chinese imports to the US, about two-thirds of Chinese imports to the US and more than half of US exports to China will remain taxed at relatively high levels.4

Also, trade tensions aren't limited to the fight between Washington and Beijing.4 US trade negotiators may now turn their attention to ongoing trade fights with Europe including ongoing disputes over US tariffs on European steel, as well as European and French goods.4 Then, there's the issue of the United Kingdom negotiating a free trade agreement with Europe following the country/region's formal exit from the European Union at the end of January.4

Greater trade tensions between big economies, coupled with the World Trade Organisation's inability to resolve disputes could hamper trade with countries/regions imposing tariffs on imports at will.4 The World Bank warns that a return to higher duties could be as devastating for global trade as the global financial crisis a decade ago.4

Geopolitical risks

It seems we live in troubled times, from ongoing conflicts among Iran and the US and Saudi Arabia to possible heightened tensions in Asia over North Korea's nuclear programme or China's ambitions on the South China Sea, Hong Kong and Taiwan.4 Greater tension or outright conflict between the US and Iran after January's escalations by both sides would likely send oil prices higher, which would act as a brake on global growth.4 Meanwhile, how China handles the standoff in Hong Kong and the future of Taiwan could agitate markets and broader economic confidence.4

Global unrest driven by increasing income and wealth disparity could also throw a spanner into the global economy, creating macroeconomic instability for both emerging markets and advanced economies.6 Then there's good-old political volatility.6 The rebirth of populism around the world, which often takes aim at the value of global cooperation and market economics, could be a detriment to what drove growth for decades.4 The outcomes of the US elections this year followed by Germany in 2021 will be telling.6


As China goes, so may the global economy. Given the size of the Chinese economy, how the country/region performs looms large in the outlook for the rest of the world.4 China's economy is slowing from elevated trade tensions with the US and its own domestic imbalances and doesn't look likely to improve in 2020.6 The World Bank forecasts China's GDP growth at 5.9% this year#, well below that of recent years, while the IMF is slightly more optimistic at 6.0%*.

One tool China could use to deliver some upside to its economy against the backdrop of slowing growth is major policy easing.6 But this option risks worsening one of the main problems of the Chinese economy – massive indebtedness.4 It may work in the short term, but would impact future growth.4 If China does experience a big slowdown, the pain will be felt elsewhere, especially among developing countries/regions which many are counting on to drive this year's global growth.4

Coronavirus impact

As China and the rest of the world continue to try to contain the coronavirus threat, the economic damage is mounting globally.8 According to a Reuter's poll of economists, China's economic growth is now expected to slow to 4.5% in the first quarter of 2020 – the slowest pace since the global financial crisis – down from 6% in the previous quarter.8 However, if China manages to contain the virus, the economists are optimistic that the country/region's economy can recover quickly.8

Global oil demand has also been hit hard by the outbreak.8 China is the world's largest oil importer. With coronavirus impacting manufacturing and travel, the International Energy Agency (IEA) has predicted the first drop in global oil demand in a decade.8 Another area that has been impacted by the coronavirus has been global commerce.8 Businesses globally are dealing with lost revenue and disrupted supply chains due to China's factory shutdowns.8 Apple, Nissan and Hyundai have been some early casualties of the coronavirus.8

Meanwhile, one of the earliest casualties of the outbreak was the travel and tourism industries. They continue to deal with the fallout from the virus.8 Global airline revenues are expected to fall by US$4-5 billion in the first quarter of 2020 while tourism revenues in many countries/regions are also expected to take a hit.8 Japan could lose US$1.29 billion of tourism revenue in the first quarter due to the drop in Chinese tourists while Thailand could lose $1.15 billion.8

Providing some reassurance, the head of the International Monetary Fund, Kristalina Georgieva, said at a recent G20 meeting of finance leaders and central bank chiefs that IMF assumed the impact of the outbreak would be relatively minor and short lived.9 But she warned that the continued spread of the virus could have dire consequences.9

As the global economy tries to steady itself in 2020 and navigate its way through potential headwinds, perhaps it's a good time for you to speak to your Relationship Manager about how you can steer your money in the right direction in the year ahead.

2020 Investment Themes

How do you navigate the potential bumps while taking advantage of the expected steady growth in 2020? Here are three key considerations.

#1 Favourable outlook

In line with optimistic views from the market observers including Blackrock Investment and Morgan Stanley on the global economy in the year ahead, HSBC Global Asset Management predicts a relatively favourable outlook for 2020 and anticipates slow economic growth, low inflation, and accommodative policies.2 Even so, the outlook remains vulnerable to shocks in an age of uncertainty.2

#2 Diversification amidst uncertainty

A key component to successful investing in the age of uncertainty is to continue to be dynamic in how you build your portfolio, and to expand your investment strategy across more geographies and asset classes, pursuing future opportunities and finding the best ways to mitigate risks.2

#3 Selectivity

Market prices remain attractive for some risky asset classes, especially versus the traditional fixed income areas where yields are negative.2 Be moderately pro-risk in your asset allocation but approach 2020 with a cautious stance.2 Choose a selective approach, both in bonds and equities, to navigate market turbulence.2


1 Morgan Stanley, 2020 Global macro outlook: Calmer waters, 13 December 2019.

2 HSBC Global Asset Management, Outlook 2020: The age of uncertainty, 10 December 2019.

3 BlackRock Investment Institute, 2020 Global outlook: Testing limits, December 2019.

4 Foreign Policy, The global economy 2020: A positive outlook shadowed by China, debt, and trade tensions, 31 December 2019.

5 EdgeProp, Malaysian economy to grow 4.8% in 2020 vs 4.7% in 2019, 11 October 2019.

6 FXStreet, Global economic outlook: Continued modest global growth in 2020 may be the best we can hope for, 5 January 2020.

7 The Edge Markets, Malaysia's view on global growth outlook in 2020, 11 October 2019.

8 World Economic Forum, The economic effects of the COVID-19 coronavirus around the world, 17 February 2020.

9 The Guardian, Economic impact of coronavirus outbreak deepens, 24 February 2020.

* International Monetary Fund, World Economic Outlook, January 2020: Tentative Stabilization, Sluggish Recovery? January 2020.

# The World Bank, Global Economic Prospects: Slow Growth, Policy Challenges, January 2020.

^ HSBC Global Asset Management, Investment Monthly: The age of uncertainty: COVID-19, 2 March 2020.

## Business Today, 2020 Investment outlook for different personas, 13 February 2020

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