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Risk factors, Macroeconomic context and forecasts - November 2019


Risk factors

The table below presents risk factors with judgmental probabilities (i.e. not market based). It also develops the possible market impacts.

Macroeconomic context - Our convictions and our scenarios

This section provides a reminder of our central scenario and alternative scenarios.

Macroeconomic picture by area

An overview of the macroeconomic outlook for world’s major economic regions

Macro and Market forecasts


November 2019



Novembre 2019


The table below presents risk factors with judgmental probabilities (i.e. not marked based). It also develops the possible market impacts.

Tableau 1
Tableau 2
Tableau 3
Tableau 4




This section provides a reminder of our central scenario and alternative scenarios.


CENTRAL SCENARIO (60% probability): resilient domestic demand and services despite the uncertainty adversely affecting trade

  • Slower global growth: the economic weakness seen worldwide during the summer has continued into the fall with very few exceptions. Industrial surveys and data continue to show that the global manufacturing sector is in recession. However, domestic demand remains more resilient, due primarily to household consumption, which continues to be buoyed by very low inflation and in certain economies by a vibrant labour market. Still, services have proved more resilient than manufacturing.
  • Global trade expected to bottom out in H1 2020: global trade has plummeted over the last 18 months, due to protectionist rhetoric. Assuming that: (1) the trade truce between China and the US is signed by mid-November and (2) the next round of tariffs planned by mid-December is delayed and remains part of an ongoing negotiation, we believe the damage to world trade dynamics at this point is done. We expect global trade to recover slowly in 2020. That said, global trade is expected to remain under pressure in the short run and to grow at a slower pace than global GDP next year. Note that the impact on economies differs from one region to another. European exports are being hit strongly by generally weak intra-EU demand and declining ex-EU demand for intermediate and capital goods (Italy and Germany). The US is advancing persistently on the path of import substitution (imports of industrial supplies and materials have decreased from 27% in 2007 to 18% out of total imports in 2019). EMs are trying to transform the challenges posed by trade tensions into opportunities. In the two winners of the trade war, Mexico and Vietnam, early trends are emerging. Vietnam is benefitting from small business relocation out of China, and Mexico is benefitting from import diversion by the US (ex-auto, exports to US are increasing in electrical and electronic equipment). In addition, we must not underestimate the resilience of domestic demand at the global level. While global trade has indeed made a strong contribution to global growth over the last few decades, this is less and less so, as global growth is now being driven primarily by domestic demand. And services are less and less correlated to industry, which can be attributed to the relative importance of consumption in relation to investments and trade since the 2008 crisis.
  • United States: a gradual return to potential, with slightly higher downside risks. The US economy, boosted by very accommodative fiscal policy in 2018, began decelerating in H2 2018 and continued to do so in the following quarters. After peaking at 3.2% YoY in Q2 2018, GDP growth gradually slowed to 2.0% YoY in Q3 2019. Fixed investments have been trending down markedly since the second half of 2019, while personal consumption expenditures have remained resilient overall. Protracted weakness in global trade and manufacturing, coupled with uncertainty over the implementation of tariffs, may have played a role in discouraging investments, partially offsetting the benefits of fiscal policy. Corporate and consumer confidence indeed worsened and only recently stabilised somewhat, raising concerns of a sharper slowdown in domestic demand. At this stage, while the probabilities of recession have risen, we don’t think a recession is likely in the near term. And yet, signals are starting to appear that the labour market is decelerating, with a slower pace of growth in payrolls and new hiring intentions supporting the view that domestic demand will keep decelerating into 2020. Even so, risks remain tilted to the downside: if trade and geopolitical tensions persist, doubts on the extension of the current cycle could intensify over the next few quarters (with less support from fiscal policy, and domestic demand under pressure with contagion from manufacturing to services). Moreover, it is important to bear in mind that below-normal growth and tighter financial conditions could trigger a contraction in profits. With this in mind, the Federal Reserve should stick to its dovish stance, signalling reasonable pragmatism and cautiousness in using its “policy ammunition”, yet keeping on check financial conditions (mainly driven by the USD’s trade weighted strength).
  • Eurozone: the Eurozone economy remains under heavy pressure as trade uncertainties and manufacturing weaknesses keep undermining growth expectations. Despite the resilience of domestic demand, which is helping to keep the economy growing, signals of potential spillovers from manufacturing to services may be materializing. Spillover risks are more evident in Germany and Italy, as services are more dependent on manufacturing, and companies’ significant reliance on foreign trade further increases the underlying exposure. Moreover, Germany likely slipped into technical recession in the third quarter of 2019. Risks are clearly tilted to the downside as uncertainties are not expected to fade in the coming months as further trade war escalations may become reality, and Brexit, despite the recent developments, remains overall unresolved. Uncertainty is playing a key role in shaping investments within the Eurozone. Accordingly, companies have started to rein in investments, leading to a weaker demand for intermediate and capital goods. Despite the gloomier economic outlook, the labour market is improving, as the unemployment rate continues to stabilize gradually at historical lows in several member-countries, holding up consumer consumption and confidence. Growth in smaller economies remains supported, despite the risk of potential contagion in the event that a sharp and prolonged deterioration in the core economies becomes more evident. The reiterated need for fiscal stimulus, along with already extensive monetary easing to trigger a rebound in the Eurozone economy seem to be a paper-tiger for the moment, as countries struggle to design a common and coordinated intervention plan. Countries with fiscal room announced that fiscal intervention might be pursued in the event of a sharper economic deterioration.
  • United Kingdom: October was an eventful month with 1/ a new Brexit agreement with the EU, 2/ the UK parliament’s refusal to apply a fast-track procedure to ratify the agreement, 3/ a further extension to the withdrawal date to 31 January 2020, and 4/ the announcement of an early general election on 12 December. While the Brexit agreement will now not be ratified until the very end of 2019 or the beginning of 2020, the risk of no-deal Brexit has considerably diminished since there is now a solution acceptable to both the UK Conservative Party (well ahead in opinion polls) and the EU, which was not the case before. Victory by the opposition parties would probably be followed by a second referendum, with the possibility that the UK will remain in the EU (although at this stage it is unclear what alternatives would be put to voters). So there is unlikely to be a major trade crisis in the months to come, and this should benefit the UK economy. However, we cannot rule out a renewed rise in uncertainty when the matter of extending the transition period that will follow Brexit arises (the transition could expire at the end of 2020, which allows a very short amount of time to finalise a free-trade agreement).
  • China: September’s string of data (released in October) confirmed the weak economic conditions, but the economy hasn’t decelerated any further since the summer months. At this point, we confirm our view of a GDP decelerating at the range floor of 6% YoY in H2 2019 (Q3 GDP released at 6% as expected) and below 6% YoY in 2020 (at 5.8% YoY). Chinese authorities have signalled their determination to keep growth above 6% in 2019. Again, the latest data haven’t shown a uniformly gloomy picture. Housing, retail sales (included auto) and infrastructure investments have been resilient or moderately growing. The authorities have very mildly ramped up their stimulus to accommodate the deceleration mentioned above. More stimulus has to come in the form of monetary policy easing (RRR), and the PBoC has recently kept the LPR on hold. Credit growth has bottomed out, while local government generic and special bonds didn’t contribute to the Total Social Financing increase because the annual quota allowed by the Government has almost been met. China has agreed to buy more agricultural products by the US in the new truce announced.
  • Inflation: core inflation is still very low in advanced economies, despite continued improvements in labour markets (unemployment rates are low in relation to historical averages in both the United States and the euro zone). There are many reasons why inflation is low. First, there is a problem with the quality of most job creations (low-paid and/or part time jobs), and those employed in these jobs are not in a position of strength to obtain wage increases. Second, structural changes in goods and services markets (new technologies in trade, in particular) can have a disinflationary impact. In addition, after years of very low inflation, inflation expectations are low, which can be a self-fulfilling prophecy. Lastly, in the euro zone, recent reforms (to the labour market and goods and services markets) have created a more competitive environment. Despite these hindrances, and while the growth cycle has not come to an end, we still believe that inflation should rise, driven by wage rises. However, the increase will be very gradual and the ECB’s target (“below, but close to, 2%”) seems out of reach for the time being.
  • Oil prices: despite the volatility recently caused by geopolitical events (September’s attack against Saudi oil facilities), fears of a global slowdown and the increase in US production are still putting downward pressure on prices. Having said that, efforts at coordination by OPEC+ members (production cut agreements in July) should limit supply. As a result, on balance we are upholding our scenario of almost no change in prices, with a target of $60-$70/barrel for Brent and $55-$65/barrel for WTI.
  • Central banks: back to a “wait and see” attitude in AEs. As expected, the Fed lowered the fed funds rate to 1.5-1.75% for the third consecutive time at the October FOMC. This decision was taken in response to continued uncertainty about the trade war and the global manufacturing recession, in a context where inflation remains low. President Powell basically said that the current monetary policy stance was now appropriate given the moderate growth outlook, which means that the Fed's decisions will depend on the data. We expect the Fed to cut its key rates further by 25bp over the next 12 months, slightly less than currently priced-in by markets. The bottom of the cycle has not yet been reached, which will probably keep the Fed under pressure next year. A pause is widely expected in December given recent positive trade news (an agreement between the US and China seems to be about to be concluded). In addition, we expect the Fed to continue to manage its balance sheet very actively. For the ECB, the situation is quite different. There have been strong disagreements on the restart of the QE and Christine Lagarde will have to rebuild a broad consensus. We expect little additional accommodations unless some downside risks materialise. We however continue to expect a final rate cut (-10 bp to -0.6%) by mid-2020 due to (1) subpar growth, (2) inflation that is consistently below the ECB's target and (3) downside risks.

DOWNSIDE RISK SCENARIO (30%): full-blown contagion to domestic demand

Two “families” of risks with different conclusions on monetary policies and scenarios

1. Trade-related risks: global trade takes longer to “normalise”, additional escalation on trade war, and full-blown contagion into consumption:

  • Growth falls further, profit recession / the global recession comes back to the forefront
  • Central banks: even more accommodative monetary policies than what are currently priced in by markets
  • Fiscal policies: would gradually take over from monetary policy to support growth

2. Market-related risks: sudden repricing of risk premia with a large impact on financial conditions, exacerbated by low liquidity (various triggers: wars (e.g., Middle East), crisis in HK, credit event (HY) etc.)

  • The policy mix (fiscal & monetary) would become much more proactive (i.e. pre-emptive) in that case, while it would likely come somewhat later with trade tensions alone.

UPSIDE RISK SCENARIO (10%): modest reacceleration of global growth in 2020

  • We have substantially revised down our growth forecasts since the start of the summer, by embedding part of the downside risk scenario into the central scenario. By definition, this means that it’s now much easier to be “positively surprised”. For instance, on the political level the most recent news flow is more positive (pro-European coalition in Italy, possible trade de-escalation, a hard Brexit scenario that has became highly unlikely).
  • Subsequently, going forward, we may see at the same time lower (political) risks and a more expansionist policy mix worldwide, which would pave the way for a rebound in confidence and a quicker normalisation of global trade.
  • A modest reacceleration of growth (slightly above potential) – vs. subpar growth in the base case – is a distinct possibility.











US growth gradually decelerates; monetary policy easing continues

  • The drivers of domestic demand keep slowing, so far with investment spending hit worse than private consumption. Business climate surveys are showing a weak spot in manufacturing and services.
  • Consumer confidence signals are mixed, but, on average, suggest that confidence is worsening. Softening growth in payrolls, weaker new-hiring intentions, wages and salary growth moderating are all pointing to a gradual deceleration in consumption. On the investment front, spending plans are shrinking. Inflation remains low (1.7% overall and 2.4% for core inflation) but remains close to the Federal Reserve’s target.
  • The Fed delivered a third cut in October FOMC, remaining open to act. The Fed also announced it will buy Treasury bills each month at least into Q2 2020, initially at a rate of $60bn/month, to maintain an appropriate level of reserves, produce rapidly supportive effects on money markets, and create some leeway and flexibility for the future.
  • While a mini-deal with China is in sight, uncertainty remains high, and domestic demand and confidence is worsening. The longer the list of goods included in tariffs, the higher the impact on U.S. domestic demand
  • Geopolitical risks and tariffs could pose an upside risk to oil prices and to our inflation






The economy is still sputtering along

  • Manufacturing indicators are still sending out no signal of rebounding. Depending on the weight of manufacturing in their respective economies, the slowdown’s impact on member-states has varied widely (with France and Spain holding up better than Germany and Italy).
  • Manufacturing’s difficulties are spilling over into services to an increasing, albeit still limited, extent.
  • Trade war and the
    threat handing over the
    European automotive
    sector from US customs
  • A no-deal Brexit



No-deal Brexit risk has receded markedly

  • Although the agreement reached on 17 October between the UK and the EU will probably not be ratified until after the December elections, the risk of a no-deal Brexit now looks very low. The Conservatives are leading in the polls.
  • After the Q2 contraction in the economy (with a 0.2% decline in GDP), figures improved in Q3. Real wages are being supported by the combination of a solid job market and the receding of inflation.


  • Uncertainty on the future
    framework of trade
    relations with the EU





Problem is not the VAT hike but awful weather

  • Weaker foreign demand has filtered through the domestic economy. In the BoJ’s Tankan survey large manufacturers’ business outlook slipped to a six-year low. However, exports finally started narrowing the scope of the y/y decline in Q3/19, thanks to a stabilization in global manufacturing PMI. The Tankan survey also illustrated that the service sector is successfully dodging a spill-over of the global economic slowdown.
  • Nevertheless, the economy will stall in Q4/19, not because the consumption tax was raised but because disastrous typhoons and subsequent floods disrupted business activity and consumer spending. Despite the tax hike, Tokyo CPI did not accelerate in October when the government set the preschool free. Heavy price discounts by retailers are underpinning consumer demand. The government is considering a sizable supplementary budget.


  • Delay in recovery in Southeast Asian economies may hamper capital investment by exportoriented firms
  • Stagnant global vehicle sales spoil the broad pyramidal structure of automobile industry



  • At the end of the latest round of negotiations, a truce was announced between China and the US, based on more agriculture product purchases by China and no tariffs rate increase by the US. The truce details are not out yet, and a joint statement is expected to be signed in the second half of November.
  • Chinese macroeconomic data showed some stabilization in September in households consumption. The private manufacturing sector has been suffering, while SOE infrastructure decoupled towards higher growth.
  • The policy mix continues to support the economy in a limited way, through both the monetary and fiscal levers. The PBoC left the LPR on hold in September.
  • Credit growth data bottomed out in September, driven by the Core component of RMB Loans. Local Government Bonds almost met their annual quota in August and September.


  • A truce announced by the
    US and China delegations
    is likely to be signed in the
    second half of November
  • No further deterioration in
    macroeconomic conditions
  • The policy mix is still
    mildly supportive


(ex JP & CH)

  • Economic conditions in the region remained quite weak in September but didn’t worsen any further. External demand has been stabilizing at low growth levels. The outlook for exports is still poor, due to the number of tariffs in place. The latest round of negotiations between China and the US offered some hopes of an interim agreement soon.
  • The region’s inflation figures have remained very benign. Noteworthy September figures came from India and China, with higher-than-expected food basket components (pork prices in particular for China), at 4.0% YoY and 3.0% YoY, respectively.
  • In October, the Bank of Indonesia continued its easing with a 25bps rate cut, while the Bank of Philippines lower its RRR by 400bps to 14%.
  • Malaysia’s 2020 budget has projected a FD at 3.2% of GDP, lower than 3.4% in 2019 but higher than envisaged in the country’s fiscal consolidation plan.
  • Still weak macro momentum in the region. A trade deal is crucial
  • Inflation still very benign, with a pick-up in China and
  • Central banks in the region
    still accommodative
  • Malaysia’s 2020 budget moderately less consolidating


  • Macro momentum in the region has been deteriorating slightly in Colombia and Brazil, but both countries still have marginally positive momentum. We reduced our growth projections for Mexico for 2019 to 0.3% from 0.5% and for 2020 to 1.2% from 1.3%, based on very weak domestic demand.
  • On the inflation front, the overall environment remains benign. Mexican inflation has converged nicely towards the central value of the target, with its latest figure at 3% YoY, marginally down from 3.2% YoY. Argentina inflation is still above 50%, and will not converge soon.
  • Banxico started its easing cycle, cutting the Policy Rates by 25bps. An inflation more comfortably within the target range will open up more monetary policy space.
  • Pension reform In Brazil has finally been approved. Fiscal reform will take time. The $5.4bn tranche of disbursement by the IMF to Argentina is definitely off the table pending debt restructuring and the new IMF plan definition.


  • Economic conditions continued to weaken;
    Mexico growth revised down
  • Inflation is overall benign but in Argentina
  • Banxico started to cut the policy rates by 25bps.
  • Argentina is heading towards restructuring its debt.

EMEA (Europe Middle East & Africa)


Russia: Real GDP growth is expected to slow down to 1.2% in 2019. However, growth is expected to accelerate in 2020 and over the medium term on the back of a significant infrastructure spending programme from 2019 to 2024 and a lower interest rate environment.

  • Despite the threat of potential US sanctions down the road, the macroeconomic scenario remains supportive. Russia is one of the few emerging market sovereigns with “twin surpluses” in 2019, while accumulating assets in its National Wealth Fund.
  • The CBR cut its policy rate again in October by 50bps to 6.5%. We expect another 50bp cut in the next twelve months, given decelerating inflation.


South Africa: exit from recession, but no miracle

  • Recently released Q2 GDP showed more resilience than the market was expecting mainly thanks to post strike recovery in mining. We confirm our 2019 GDP forecast of 0.8% YoY with downside risks.
  • Given weak GDP growth and inflation surprising to the downside, and despite deteriorating fiscal dynamics, we expect the SARB to adopt a more accommodative stance.


Turkey: we expect double-digit inflation and a recession in 2019

  • The growth report for the second quarter of the year showed only a marginal improvement in the recessionary phase that Turkey is going through. We expect GDP growth of -1.8% in 2019, and a rebound in 2020 accompanied by a lax fiscal stance.
  • The Central Bank of Turkey cut its policy rate significantly in October, by 250bps to 14%. We expect some more easing to come in support of very weak economic conditions
  • Drop in oil prices, stepped-up US sanctions and further geopolitical tensions






  • Increased risk aversion, risk of sovereign rating downgrades, rising social demands, and the risk of fiscal slippage



  • Excessive easing by the central bank, a loose fiscal stance, escalation of geopolitical tensions, and a slowdown in Eurozone activity

Amundi Research
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Risk factors, Macroeconomic context and forecasts - November 2019
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