_2020 Outlook: Global and local macro overview

Global growth has softened in 2019, partly driven by a slowdown in the Chinese economy and the trade war between the United States and China. These factors have weighed on confidence and investment and driven a sharp slowdown in manufacturing activity and global trade. 

The global economy is expected to pick up in 2020 but growth will remain subdued amid policy uncertainty and geopolitical risks. The IMF forecasts global growth will pick up from 3% in 2019 to 3.4% and 3.5% in 2020 and 2021 respectively, although the recovery will be uneven across economies, with emerging market countries largely driving higher growth.  

Growth in the Australian economy has also slowed over the past year. Weak income growth continues to weigh on consumer spending, while housing investment has declined sharply. On the other hand, government spending has made a strong contribution to growth and the depreciation of the Australian dollar continues to underpin demand for our exports. 

Economic growth is expected to pick up in 2020 but remain below average. Consumer spending should improve supported by lower interest rates and the brighter outlook for the housing market, although consumption will remain constrained by weak income growth. Growth will become more balanced between the states as the downturn in residential construction weighs on activity in NSW and Victoria, while export growth drives stronger activity in Queensland and Western Australia. 

Despite the brighter outlook going into 2020, the RBA is set to cut interest rates to near zero reflecting ongoing excess supply in the labour market, low inflation, and greater uncertainty around the global outlook. If further fiscal stimulus not forthcoming, the RBA will also likely launch quantitative easing. 

Property market implications:

• While the outlook is set to improve, growth will remain low by historic standards and many global risks weigh on confidence. In this environment, firms will be more cautious, and absorption will remain subdued. 

• Occupier market performance in Australia will converge to some extent as economic and employment growth becomes more balanced between the states. 

• Monetary easing will provide substantial stimulus, boosting activity in capital markets and driving capital values higher.