Economic results of 2019 and forecast for 2020
The end of 2019 turned out to be quite ambiguous for the economy. Its growth was the weakest in the last ten years, but at the same time it was one of the most profitable for some sectors of financial assets.
The difference between the growth of individual markets and the economy as a whole happens due to the credit policies of the major banks in the world. If at the end of 2018 the US expected three rate hikes to 3.0-3.25%, now there have been three reductions to the 1.5-1.75%. The banks that cut rates include the ECB, the People’s Bank of China, the Bank of Russia and the Bank of Brazil. At the same time, banks also increased the provision of liquidity to the market.
Due to these events, we observed a decline in the level of world trade. The last time it was observed during the crisis and stagnation of the industry in 2008. All this became one of the reasons for the formation of a fundamental gap, which was expressed in a decrease of the trade level, a slowdown in the pace of industrial development in parallel with the development of the service sector. Majorly, this was due to financial support provided from the budget: 20 sectors of the economy experienced a lack of support by 3.5-4% of GDP.
Given the tax hikes and rough fiscal and credit policies, the economy grew predictably low. When the Bank of Russia began to use funds from the budget more actively and cut rates to 6.25%, the situation improved. Also, about $22 billion from non-residents came into the state debt during the year. Foreign investments covered the losses from energy resources falling prices, and also strengthened the stability of the ruble throughout the year. The decrease in rates and the inflow of foreign investments led to a decline in the profitability of government bonds in the second half of the year.
Inflation in these events stands a little apart, it was below the expected level. In the second half of the year, there was a minimal price surge of 0.2% m/m, which corresponds to an annual inflation of about 2.5%. Considering these conditions, the rates of the Bank of Russia, despite the decrease, still look quite high.
In general, the situation in Russia practically doesn’t differ from what is happening on the world market: almost imperceptible growth, minimal inflation, lower rates and a rapid rise in prices for financial assets.
If we extrapolate the general trend for the coming year, expectations will look promising. One way or another the US authorities will try to restrain the economy and the market, perhaps there will be a decrease in tax payments for the middle class, and the FED will stimulate policy by gradually lowering rates in the spring. Trade issues ahead of the elections should diminish, giving hope for their resolution.
The Eurozone is expected to increase support for the economy with the help of budget funds. China will continue to maintain growth within the 6% target and will try to prevent a downturn in the financial industry. Political wars in Latin America should not affect the solvency of the financial sector, and India can resume economic growth. The Middle East is likely to be rife with turmoils, but it will hardly affect oil prices.
The ideal forecast for the next year looks something like this, but it is probably not that simple.
In 2020, attention should be paid to rapidly growing markets and geopolitics. The economy continues to grow only thanks to the growth of total debt and soft credit policy, but this process is slowing down.