What Are the 2020 Global Economic Risks Identified by Overseas IBs?

Trade Conflicts, Policy Errors, Financial Instability, Political Unrest, Climate Change

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[Asia Economy Reporter Kim Eunbyeol] Major overseas investment banks (IBs) have identified trade conflicts and policy errors as the biggest risks threatening the global economy this year.

According to the International Financial Center on the 26th, a summary of the 2020 global economic risks announced by overseas IBs at the beginning of the year highlighted ▲trade conflicts ▲policy errors ▲financial instability ▲political unrest ▲climate change-related issues as the main risks.

These downside risks are expected by IBs to act as burdens on the real economy, raising concerns about a simultaneous downturn in manufacturing and service industries, resulting in a fragile recovery for the global economy this year.

Regarding trade conflicts, IBs foresee an escalation of tensions between the US and China, as well as a full-scale conflict between the US and the European Union (EU). They also expect the functions that mediate global trade disputes to deteriorate, thereby impacting the situation. Deutsche Bank, Charles Schwab, and others noted, "Conflicts remain over issues such as the implementation of China's agricultural and livestock purchases, national security, and human rights differences." In particular, Eurasia Group reported that the EU's expansion of digital tax implementation and non-cooperation with sanctions against China's Huawei are intensifying a hardline stance, raising concerns about clashes such as US retaliatory tariffs.

HSBC and Oxford Analytica expressed concerns that the deepening of protectionism and nationalism could weaken the multilateral trade system, potentially causing the World Trade Organization (WTO) to fail to function properly.

Regarding policy errors, while the possibility of additional interest rate cuts by major central banks remains open amid a challenging environment for a V-shaped global economic recovery, the Federal Reserve (Fed) in the US is expected to take a cautious stance ahead of the presidential election, raising concerns about monetary policy missteps. IBs concerned about policy errors include HSBC and Deutsche Bank. Deutsche Bank stated, "Although the role of government fiscal policy is being emphasized, there is significant policy uncertainty in the US around the election, such as tax cuts, and Europe has limited room to significantly increase fiscal spending, which may weaken fiscal expectations."

ABN AMRO, a Dutch bank, forecasted that "the partial rollback of US tariffs on China will exert downward pressure on inflation, supporting the possibility of additional Fed rate cuts in the first half of the year." This analysis differs from forecasts expecting rates to remain steady this year. As low growth continues in countries such as Europe and Japan, unconventional monetary policy responses are expected to strengthen, and a strong dollar environment may increase the likelihood of US currency intervention, heightening the risk of a global currency war.

Financial instability risks were also highlighted, including the potential weakening of stock price support due to reduced share buybacks by companies, especially in the US, amid profitability deterioration caused by economic slowdown. Additionally, sharp rises in US repo rates and an increase in downgrades from investment grade to speculative grade among companies are risk factors this year. UBS pointed out, "An increase in speculative grade downgrades leads to greater volatility in borrowing costs, which could exacerbate financing difficulties for companies with weak asset quality."

Furthermore, political unrest such as the US presidential election and impeachment, as well as responses to climate change, were also identified as major issues threatening the global economy.

The International Financial Center stated, "Although uncertainties related to the US-China dispute and Brexit, which were major topics early last year, seem to have somewhat eased this year, the risk of recurrence remains latent. With political and geopolitical instability becoming more prominent, downside prospects for the global economy are relatively dominant."

This content was produced with the assistance of AI translation services.