^{Source: Cazenove Capital, Datastream, December 2019}

The cycle continues

We think the global economy is stabilising as we head into 2020. Manufacturing remains weak, but there are tentative signs of recovery around the world. For the first time this year, the Schroders’ economics team upgraded its global growth forecast for 2020 to 2.6%, from 2.4%. The size of the change is small, but the shift in direction is important. Growth is stable, rather than on a downward trajectory.

It looks increasingly as if the slowdown that started mid-year was a trade war wobble, rather than the start of something more significant. We recognise that this takes the current economic expansion to unprecedented lengths. However, it is important to remember that this has been a shallower expansion than previous ones.

As I have said before, expansions do not die of old age. What usually brings an economic cycle to an end is overheating. And while parts of the stock or credit market have looked frothy in recent years, there has been little sign of excess in the real economy.

In the US, manufacturing output only returned to levels seen before the financial crisis in 2018. Household spending, which represents around 70% of the economy, has experienced more robust growth. But this has been achieved at the same time as consumers paying down debt, rather than borrowing to fund purchases. This does not feel like an overheating economy.

Trade remains the key risk. The signs we are seeing of a pick-up in global growth are still fragile. A significant setback in US China negotiations could extinguish them.

The world's economy continues to grow...

...but the origins of that growth are shifting

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