The U.S. and Global Economies: Is Global Growth Rebounding?

• Author: Barkey, Patrick M.

The question many of us were asking at the beginning of last year was how much longer could the U.S. economy continue to ride high as the rest of the world seemed to be faltering? Just a few short months ago, we thought the answer was clear--not much longer. Business spending, manufacturing output and even the pace of job growth all seemed to be going in the wrong direction in the U.S. economy, just as the leaves on the trees were turning.

But much has changed in just a few months. The Federal Reserve has lowered interest rates three times, job growth and consumer spending has remained robust, and the global economic malaise induced in part by trade war-related uncertainties has begun to ease. A recession for the U.S. economy is no longer the most likely scenario for 2020, even as the empty calories of the tax and spending stimulus of 2017 fade and obstacles for important pieces of the economy remain.

Here are the top 10 predictions for the U.S. and global economies for 2020 courtesy of our friends at IHS Markit:

1. U.S. growth will return. Two straight years of an extra fiscal stimulus (and trillion dollar Federal government deficits) helped push economic growth up to about 2.5 percent per year beginning in 2017. This year will see a return to trend growth of about 2 percent, with slower growth averaging 1.6 percent per year to follow. The presidential election brings extra uncertainty, with downside and upside risks.

2. Major economies in Europe teetered on the edge of recession in 2019, but fresh signs suggest Germany and Italy may have stabilized at the end of last year. Consumer spending remains the only true bright spot, thanks to low inflation and low interest rates. This year Eurozone growth should be weak but positive, helped with a trove of new stimulus measured from the central bank. The United Kingdom s fresh push towards Brexit has dimmed prospects in that corner of the continent.

3. Japan's economy actually strengthened in 2019 from a growth stumble in the previous year, but closed out the year on a sour note, as its economy was hit by a major typhoon and a big sales tax hike that hammered retail sales.

4. China's growth continues to drift downward, with new uncertainties stemming from its ballooning public and privately-held debt. Trade frictions with the rest of the world have not helped, but the main reasons for the deceleration are structural as the population ages and business costs rise.

5. Emerging economies will move...