With no changes to our global view, the revisions to our AxJ forecasts are small. On average, our 2020 growth forecasts are 0.1ppt higher than they were three months ago. This means they are still below consensus (by 0.3ppt) even though consensus forecasts have been cut. Most Asian economies will grow at about the same rate in 2020 as they did in 2019. Some will slow, predominantly because investment in 2H19 has weakened. These growth rates are below trend, output gaps are widening. The exception is China whose growth will be 6%, 0.2ppts slower than 2019, because the government’s objective is to track trend and trend growth is slowing.
Disinflationary forces quickly reasserted themselves as the world economy started to slow in 2018. Aside from the effects of African swine fever, they remain dominant in 2019. We expect this to continue in 2020. World trade growth is too slow to support commodity prices and we expect industrial commodities, fuels and, from early-2020, foods to fall in price in 2020. Core inflation is still drifting lower and our inflation forecasts are below consensus across the board. This means that AxJ rate cuts, which have recently been paused because of the Fed, will restart, most likely in 2Q. Only Taiwan will not have lower policy rates by end-2020.
By end-2020 global conditions will be improving. The US is approaching a recession, but it will be a shallow and short-lived one. Asian exporters’ growth will accelerate in 2021. Monetary policy though will stay accommodative. Disinflationary forces will be slow to dissipate.