13 Feb 2020   |   Network Updates   |   Update from Esade
These updates are republished press releases and communications from members of the Science|Business Network

Global economy will grow 3.4% in 2020, according to Esade

Developed economies will grow 1.8 per cent, except for the United States, which will reach 2.1 per cent. The average growth rate will be 4.6% for emerging economies; with India reaching up to 7% and China 5.8%

The global economy will grow 3.4 per cent his year according to the 2020 Esade Economic and Financial Report. The report’s research team is led by Jose Ignacio Conde-Ruiz, visiting lecturer at Esade, and the report is published with the support of Banco Sabadell.

The report’s authors attribute current global economic growth, which is greater than last year, to macroeconomic policies and the recovery of several large emerging economies from recent problems. Specifically, developed economies will grow by some 1.8 per cent, a similar figure to the previous year. The United States, despite slowing down, will register an increase of 2.1 per cent thanks to the budget agreement reached last year and support from the Federal Reserve with a cut in official interest rates.

Emerging economies will improve their growth rates and reach an average of 4.6 per cent. India is forecast to exceed the average and reach 7 per cent due to an expansive monetary policy, lower business taxes, and government aid for consumption in rural areas. China is expected to grow by 5.8 per cent, although it will suffer a clear deceleration because of the trade war with America and tighter financial regulations.

The authors of the 2020 Esade Economic and Financial Report point to a general recovery of the Latin American economy after a ‘very weak’ 2019. Brazil will accelerate its growth rate to 2 per cent, and Mexico to 1.4 per cent. Although showing some improvement, Argentina will remain in recession. Peru, Colombia, and Chile will continue as the fastest growing economies in the region, and will expand by between 3 and 4 per cent if the political instability seen in recent months has no economic repercussions.

For Japan, weak international trade (which it is attempting to counter with expansive fiscal policies) means recovery will not arrive this year and growth will fall from 0.9 to 0.5 per cent.

Europe improves – providing Brexit is orderly

Weak external demand and industrial production in the eurozone will continue to punish its major economies, although growth will slightly improve in 2020 and reach 1.4 per cent. The same will occur, according to Esade’s experts, for Germany (1.2 per cent) and France (1.3 per cent); as well as Italy (0.5 per cent) to a lesser extent. Ireland, Portugal, and Greece will grow slightly above this average as they continue to narrow gaps in output.  

Britain will also experience similar growth to last year and could end 2020 with 1.3 per cent if it continues its expansive fiscal policy and achieves an orderly Brexit. Otherwise, the forecast could worsen significantly.

Eastern European economies such as Poland, Hungary, and Romania, will continue to grow between 3 and 4 per cent, thanks to wage increases and good growth in consumption. Russia and Turkey, whose increase in 2019 was fairly weak, will improve their performances thanks to the support of fiscal policies from their respective governments.

The authors of the Esade report warn that the European Central Bank's expansive monetary policy has reached its limits – as Mario Draghi and Christine Lagarde have already warned. For this reason, the authors argue that greater European coordination between fiscal and monetary policies will help tackle the economic challenges more efficiently. They indicate that it would be very beneficial if fiscal policy could take advantage of the space created by low interest rates, as this would enable the public sector to be financed very cheaply. In this regard, the authors believe that the design and implementation of the new European Green Plan, accompanied by a common fiscal mechanism, could be an excellent opportunity to advance European tax integration and strengthen medium-term growth.

Fears lessen about Brexit and trade wars  

To the already mentioned negative consequences on global economic growth of Brexit and the trade war between the US and China, the authors add that there may be a further slowdown in emerging countries and a knock-on effect from falling industrial production on associated service sectors, as well as possible turbulence in financial markets (although all of these risks are diminishing). 

To minimise these dangers, the authors call for national policies to tackle the structural problems that hinder investment and growth in emerging economies, as well as a relaxation of commercial tensions – given that a resurgence of tension could affect the efficiency of the global value chain. If families maintain their current confidence levels, jobs will continue to be created, and consumption levels will be maintained.

This communication was first published  4 February 2020 by ESADE.

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