Is a Recession in Europe on Tap?

The Mercer 2020 outlook came out in January.

The firm expects growth to pick up somewhat in 2020, both in the United States and the rest of the world. Inflation in the US is expected to increase a little in the States but remain at or below the Federal Reserve’s 2% target. Growth in the United States is expected to be driven by low borrowing costs, a strong labor market, and a potential doe a de-escalation of the trade conflicts that would lead to a pickup in business spending.

Mercer 2020 Outlook: Brexit, Germany, and Upside Bias

In Europe, they think we may see further slowing as some nations, including Germany, may fall into a recession in 2020. They note that most of the EU’s slowdown comes from extreme weakness in the German auto sector. The firm notes that most other areas of the economy are holding up very well. Mercer expects the labor market to pick up in Europe this year, possibly leading to a rise in inflation. As is the case in the United States, they do not expect inflation to rise above the European Central Banks 2% target.

Mercer suggests that until Brexit reaches a resolution, uncertainty will halt commitments to large capital-intensive projects. If Brexit didn’t hang over the United Kingdom, Mercer could make a positive case for the economy. The labor market is as strong as it has been in the past 50 years, and wages are growing by about 4% annually.

Meanwhile, Mercer analysts have a mild upside bias for equity prices in 2020. However, they note that substantial downside risks exist. Government bonds around the world should also see rate increases this year as inflation increases modestly around the globe. They also expect credit conditions to remain form enabling corporate bonds to outperform government bonds this year. The dollar is likely to fall against most currencies after outperforming them in 2019.

You can download the full report here.

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