World’s major industries likely to pick up momentum in 2020: EIU

December 4, 2019 (MLN): The global GDP growth and global trade are expected to pick up the momentum in 2020, despite continuing trade tensions.

The report issued by The Economist Intelligence Unit (EIU) highlighted the outlook of the world’s major industries in 2020.

The previous year, the EIU pinpointed five major risks that could undermine global business during 2019. Four of those risks came true: the deepening of the US-China trade war, an emerging market downturn, tussles over technology and sanctions on Iran. These all dented economic growth and consumer confidence, dragging down sales across several business sectors during 2019. The fifth risk, Brexit, has still not happened but continues to overshadow business in Europe.

Underlining the likely future situation of 2020, the report covered six major business sectors which showed the divergence in regional trends, leading to mixed growth forecasts. The sectors are automotive, consumer goods and retailing, energy, financial services, healthcare, and telecoms. While there will be opportunities on offer, the EIU mentioned six factors that will determine the direction of these industries in the coming year:

  • A sporadic recovery: Although the global economy will accelerate, growth will be led by an upturn in non-OECD markets, while OECD markets will remain subdued. However, GDP growth in China will also continue to slow, affecting global demand for many goods and exposing problems with manufacturing overcapacity.
  • A watershed election: The US presidential election in November 2020 will be a turning point for several sectors.
  • From trade to regulation: The US-China trade war will broaden to affect markets including the EU and is expected that more US sanctions against Chinese companies, as well as legal skirmishes over intellectual property.
  • Asian alliances: While the US continues to raise trade barriers, Asia is forging ahead with new trade deals. The 16 countries in the proposed Regional Comprehensive Economic Partnership (RCEP) aim to sign an agreement in 2020, creating the world’s biggest free-trade agreement. Meanwhile, the 11 countries in the overlapping Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will continue to ratify that deal while opening negotiations with potential new joiners such as China.
  • Brexit hangover: Even if Brexit happens on January 31st 2020 as it is expected, but still uncertainty will not disappear. The transition period could be fraught, with short-term disruption to trade flows heightening political wrangling over future trade deals.

These factors will affect all six of the industries covered in this report, to varying degrees.

The automotive sector, which has tumbled in 2019, will benefit somewhat from the recovery in many emerging and developing markets. However, commercial vehicle sales, in particular, will come under pressure from global trade trends as the US continues to threaten vehicle-producing countries such as Mexico, Germany, Japan, South Korea and China with increased tariffs. Brexit will also bring enormous challenges for Europe’s vehicle sector, particularly for UK-based producers.

The EIU has forecasted by seeing the trend that new-car sales will recover to grow by 1.7%, but commercial vehicle sales will edge down by 0.1%.

Consumer markets will also be badly affected by global trade tensions, particularly in the electronics sector, while the political turmoil in Hong Kong will dent sales of luxury goods. This, combined with retail’s greater reliance on developed markets and the rise of online retailing, will slow global retail sales.

 The EIU expects that retail sales to rise by just 2.2% in volume terms, down from 2.5% in 2019.

The energy sector, the pledges made under the Paris Climate Change Agreement in 2016 will begin to take effect in 2020, making this the base year against which 2030 targets will be judged. However, with the US on the brink of withdrawing from the agreement, global progress will be slowed. The target of slowing global warming to less than 2 degrees centigrade is looking increasingly unattainable unless the US election results in an unexpected policy change.

The EIU has projected that the global energy consumption will rise by 1.8% in 2020, with particularly strong growth for renewables, while oil prices will remain range-bound;

The financial services sector will see little uplift from accelerating global growth because it will be more affected by the slowdown in core OECD markets. The economic weakness of developed markets will keep interest rates low, maintaining the pressure on banking and investment margins. Several major financial hubs, including Hong Kong and London, will also be fragile amid difficult political conditions.

However, the expansion of digital banking will hold immense promise for increasing financial inclusion in emerging markets as it is expected that the bank balance sheets and lending will expand by 6.5% in 2020.

The US presidential elections will be a particular watershed for the healthcare sector, too. Debates will rage over healthcare reform and drug pricing. The EIU forecasted that healthcare spending will climb by 6.2% worldwide in US dollar terms, despite the growth of just 3.1% for pharmaceuticals in 2020.

In the telecoms sector, investment in 5G and fibre fixed-line services is likely to be a top priority in 2020. However, companies will have to invest with little certainty of a return and with regulation still uncertain. Moreover, the US-China trade war will continue to pose a major risk, given the dominance of Chinese companies such as Huawei in the build-out of telecoms infrastructure.

The EIU has anticipated that the global mobile subscriptions will increase by 3%, fixed lines by nearly 2% and broadband subscriptions by 6%.

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Posted on: 2019-12-04T11:54:00+05:00