What's the worst thing that could happen in 2020?
- 16 December 2019
- 5 minutes
In a November 2019 roundtable, Marcus Brookes, Keith Wade and Jon Wingent took part in a discussion led by David Ryder in which the outlook for 2020 was investigated.
In this extract, we imagine the best and worst events or development that 2020 could bring.
DR: What would you most or least like to see next year?
JW: I’d most like to see something happen with Brexit; this never-ending stagnation frustrates people and businesses. I’d least like to see a very hard Brexit which I believe would have a significantly negative effect on the economy and on our clients’ lives within and beyond investments. Though, not too far behind that, would be a never-ending continuation of the saga.
KW: I would concur on some clarity with Brexit. But to give another response, the best thing would be better growth in the eurozone, which is well overdue. Perhaps the new European Central Bank Governor, Christine Lagarde, can galvanise the politicians in Europe to increase public spending. As we’ve mentioned, there is scope for the likes of Germany, the Netherlands and France to do some “strategic” spending as Ms. Lagarde puts it.
Germany is running a very big surplus (i.e. selling much more to overseas clients than it buys from them). In many ways, that’s causing the imbalance in Germany’s favour which needs to be spread more evenly across Europe. If we get that coming through then countries with a lot of debt, particularly Italy, would become less of a point of weakness for the entire region. The worrying one for me would be an escalation in the US and China dispute. That would be very bad news for the global economy which is just starting to respond to rising hopes of an improved outlook on that score.
MB: I’d like to see a global growth profile that allows central banks to return to a more “normal” situation. It would enable interest rates and inflation to be returned to higher stable levels, while also providing the opportunity to extract all the extra money from the global economy that the central banks have been injecting over the past decade through quantitative easing (which we talked about in our discussion on central banks.
To give an indication of how unconventional things are at the moment, we’re in the longest economic US expansion ever, yet we have some central banks imposing negative interest rates. That’s been translated into negative bond yields of government debt as you’d expect. But there are also something like 14 instances in which high yield debt pay negative yields. That reflects how much risk some investors are prepared to take in order to hold investments that offer what they consider to be an “acceptable” annual return.
As this goes on and on and the unconventional becomes conventional, the next downturn, which is inevitable, will present a much sterner challenge for central banks to combat. If things get really tough, we might see central banks being persuaded to operate “modern monetary theory”, which is more or less a euphemism for printing cash and handing it out to the public. That could carry some pretty destabilising ramifications.
The worst case scenario would be that a really big debt problem is developing somewhere in the world that everyone is missing. There’s usually a loan problem like this somewhere. The suspect for the past decade has been China, but China has always been able to grow just enough to prevent its debt burden from becoming a major, current problem. So if China’s growth turned out to be a mirage, that would probably be my nightmare scenario.
DR: Well on that happy note, I think we can conclude the conversation! Let’s hope we get the good stuff and not the bad. Either way, many thanks for your time gentlemen.
Round table attendee biographies
David Ryder, Senior Investment Writer and Analyst
Schroders Personal Wealth
David has been leading the production of investment commentary at Schroders Personal Wealth (and before that for Lloyds Private Wealth) for more than four years. His 25 years of experience include publishing, broadcasting and journalism across a range of financial and investment topics.
Marcus Brookes, Chief Investment Officer
Schroders Personal Wealth
Prior to his role in Schroders Personal Wealth, Marcus was Head of Multi-Manager at Schroders from 2013 with responsibility for the Schroders multi-manager team and investment process. Marcus has over 25 years’ experience within investment management, specialising in manager selection and asset allocation.
Jon Wingent, Head of Investment Specialists
Schroders Personal Wealth
Jon Wingent has been Head of Investment Specialists since September 2016. Jon heads the investment specialist which supports colleagues and clients with subject matter expertise on investment related matters. Before joining us, Jon was an investment director at Close Brothers Asset Management. He has 17 years’ experience in the investment management industry.
Keith Wade, Chief Economist
Keith is responsible for the economics team and the Schroders house view of the world economy. He is a member of the Group Asset Allocation Committee. He joined Schroders in 1988, before which he spent four years as a research officer at London Business School.
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