Weekly Bulletin: Thawing Trade Tensions

Elga Bartsch, Head of Macro Research for the BlackRock Investment Institute

“The base case is that growth is going to pick up and edge a little higher this year and that means that the recovery remains intact. There are a number of reasons why growth is going to get better: The first is that thawing of trade tensions between the US and China, but also the material easing in financial conditions seen last year on the back of the pivot towards easing by central banks around the world.”

“In terms of the macroeconomic outlook there are two main risk scenarios to consider. One could be that we are too cautious on the recovery gaining momentum in 2020, so that growth is materially stronger than expected and without any material pick-up in inflation pressures. This would be a ‘Goldilocks’ scenario.”

“The second risk is that we are too optimistic on growth and instead, we’re overlooking material inflation risks that could be building, especially cost pressures. That could end up in a mild stagflation. This usually happens if you have a deterioration on the supply side of the economy, which coincides with a material slowdown in productivity growth.”

Week Past

Brexit – the UK formally left the European Union on 31 January, triggering a war of words. Prime Minister Boris Johnson said there was no need for the UK to follow EU rules on trade.1

Bank of England rate decision and inflation report – Although there had been talk of a potential interest rate cut, the Bank of England left rates unchanged at 0.75%. However, the Monetary Policy Committee (MPC) estimated Britain’s economy would only grow at 1.1% on average over the next three years.2

Federal Reserve rate decision – The US Federal Reserve officials left interest rates unchanged at 1.5% to 1.75% at their first meeting of 2020. Jerome Powell said the economy was solid, particularly jobs growth and consumer confidence, but global risks remain.3

US and Eurozone gross domestic product (GDP) – Eurozone growth was just 0.1% in the October to December quarter over the previous quarter, confounding expectations of a bounce-back.4

US growth – US growth was in line with market expectations for the fourth quarter, at 2.1%, but behind White House expectations. Full year growth of 2.3% was below 2.9% in 2018 and 2.4% in 2017.5

Chinese manufacturing and non-manufacturing Purchasing Managers’ Index (PMI) (January) – China’s manufacturing sector showed signs of life, with the PMI index hitting 50 for January, in line with expectations. However, the statistics do not consider the impact of the coronavirus.6

Week Ahead

UK budget – The Chancellor Sajid Javid has said the new Budget will set out “ambitious plans to unleash Britain’s potential, level up across the UK and usher in a decade of renewal”, but he faces some tough choices as lower growth gives him less room for manoeuvre.7,8

British Retail Consortium – The Christmas period was tough for retailers, but retail sales are expected to be stronger in January, up 1.7% year on year.9

UK data – UK services and industrial production, plus fourth quarter economic growth statistics come out this week, giving a snapshot of the strength of the UK economy and whether the post-election bounce can be sustained.10

US Institute for Supply Management (ISM) non-manufacturing PMI (January) – the index is expected to rise to 55.1 from 55, reflecting a more optimistic outlook after the US/China trade deal.9

US initial jobless claims – claims are expected to rise to 219,000 from 216,000.9


  1. Brexit: Boris Johnson says ‘no need’ for UK to follow EU rules on trade, BBC, February 2020
  2. Bank of England holds rates but cuts growth forecast, Financial Times, February 2020
  3. Fed Leaves Interest Rates Unchanged, New York Times, February 2020
  4. Eurozone growth slows sharply as French and Italian economies shrink, the Guardian, February 2020
  5. Fourth-quarter GDP rose only 2.1% and full-year 2019 posts slowest growth in three years at 2.3%, CNBC, February 2020
  6. China says its manufacturing PMI came in at 50.0 for January, as expected, CNBC, February 2020
  7. Chancellor launches Budget process to usher in ‘decade of renewal’, UK Government, January 2020
  8. Sajid Javid’s surplus goal at risk as UK finances face £12bn black hole, Financial Times, February 2020
  9. IG Index, week ahead, January 2020
  10. FX Street, Economic Calendar, January 2020

The opinions expressed are as of February 2020 and are subject to change at any time due to changes in market or economic conditions. The above descriptions are meant to be illustrative only.