Trump, the Fed, China: three things that could complicate the outlook for emerging markets in 2020

The upcoming US presidential election, US monetary policy and the Chinese economy are likely to affect emerging economies next year. In an ageing China, 2020 might be the start of a decade of lower growth

Reading Time:3 minutes

Pedestrians walk past Huawei and Apple stores at night in Wuhan, Hubei province. In 2020, China’s real GDP growth is likely to dip below 6 per cent per year. Photo: Bloomberg

Published: 11:00pm, 29 Dec 2019Updated: 11:00pm, 29 Dec 2019

When it comes to the outlook for emerging markets in 2020, the bottom line is maddeningly simple: “It’s complicated.” There are a number of reasons for this.

For starters, we are living in extraordinary times, owing to the unpredictable personality of United States President Donald Trump. As the 2020 US presidential election approaches, his behaviour is likely to become even more erratic.

To improve his re-election chances, will he engage in even more sabre-rattling, threatening, say, additional tariffs against China or military action against Iran? Or will he focus on keeping financial conditions accommodative of a slowdown or recession just before the election? There are no obvious answers.

Consider this. During the G7 summit in Biarritz, France, in August, Trump claimed he had received calls from China seeking a new round of negotiations to resolve the trade war. But, unnamed sources quoted in the US media said this was untrue, and merely an attempt by Trump to prevent markets falling. That tells us a lot about where Trump’s priorities lie. And, in the meantime, China and US negotiators have announced a partial trade deal.

A second complication for the 2020 outlook is monetary policy. What path is the US Federal Reserve likely to take, and what will it mean for the dollar? These two related issues tend to have a disproportionate influence on developing and emerging markets, particularly those with a lot of dollar-denominated debt.

If the Fed continues easing its monetary policy as expected, and if the dollar stops rising, emerging markets will have less to worry about. But if the Fed is forced suddenly to start tightening – for example, if inflation finally picks up – developing and emerging markets would fare poorly, as would the rest of the global economy.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x