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What Could Spoil 2020?

The most probable scenario for the global economy and financial markets this year is fairly obvious: continued GDP growth, rock-bottom interest rates, and rising equity prices. It's more useful to identify which unlikely events would alter this likely benign scenario – and consider how unlikely they really are.

LONDON – The traditional January game of economic forecasting for the year ahead hardly seems worth playing when the predictions have been the same for a decade. In 2020, it is even more likely than it has been every year since the financial crisis that the global economy will continue growing, interest rates will remain at rock-bottom levels, and stock markets will keep rising.

So, instead of predicting the most probable scenario, which is fairly obvious, it is more useful to consider unlikely events that would alter the likely benign scenario. I believe ten risks could cause the most economic and financial trouble in 2020. These are not predictions: continuing global expansion is more probable than any combination of these setbacks. And they are not “surprises,” which, by definition, are impossible to foresee. Rather, they are “known unknowns,” arranged from the lowest risk to the highest, in my view.

The smallest risk is the one that many economists predict every year: a global recession, caused by the United States or China. A recession is inevitable, but less likely in 2020 than in any of the previous ten years. While investment and manufacturing worldwide have suffered from the US-China trade war, macroeconomic policies in both countries have boosted housing, services, and public spending. The world economy will continue to benefit this year from a tailwind from last year’s US interest-rate cuts and China’s efforts to support roughly 6% growth. Absent some powerful new shock, recession in 2020 is therefore extremely unlikely.

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