Hello, this is Nariman Behravesh, Chief Economist of S&P Global. Every year, we produce the top 10 predictions for the next year; look at the top 10 predictions for 2020; but, we'll also do a retrospective on how we did for predictions in 2019.
So, this is the retrospective on how we did for our economic predictions in 2019. We had predicted basically that growth would slow, but that there would be no recession. And that's in fact, what happened. We got eight of our ten predictions right, one of them sort of half-right, and one of them wrong. The one that we got wrong was in fact, we and others assumed that the Federal Reserve and other Central banks would raise interest rates. But indeed, they lowered them. So, that was the only one that we got wrong. The rest we got basically right and in fact, growth continued; it slowed, but there was no recession in 2019.
Let's now look at the top 10 predictions for 2020. The first of these has to do with the US economy. We are predicting that the US economy will grow at-trend. We estimate at S&P Global, that trend is around 2%. And indeed, that's what the US will grow, more or less within a 10th or two in 2020. Good news is there's a lot of reasons that growth will be sustained. Probably the most important is that the US consumer spending, about 70% of the economy, is going to grow about 2.7% and that will form the foundation, a solid foundation for, for US growth. So, good growth in the US, trend growth, but nothing spectacular.
Our second prediction for 2020 is that European growth will stabilize. European growth has fallen quite dramatically over the last couple of years but we expect it to stabilize in 2020 and maybe come up a little bit. And the early indications from the S&P Global Purchasing Managers Indices is that this is already happening; both the manufacturing and services PMIs have bottomed out and are starting to rise a little bit. And a lot of thanks, goes to very easy monetary policy by both the Federal Reserve, and to a lesser extent, by the Bank of England and so this is helping growth. A big uncertainty out there is exactly how the Brexit process will play out and that could create a headwind for European growth.
The third prediction that S&P Global has for 2020 is the Japanese growth will slow because of the increase in the sales tax that was put in place at the beginning of October of 2019, and in fact, that sales hike will trigger negative growth in the fourth quarter of 2019, and maybe even the first quarter of 2020. But the government, the Japanese government, has put in place stimulus, which will cushion that fall in growth so that you know, there may be a technical recession in 2019-2020, but we don't expect the negative growth to continue, thanks in large part to the support from the governments.
Our fourth prediction for 2020 is that Chinese growth will fall below 6%. It has been falling quite steadily over the last few years, mostly because of structural reasons: labor force growth has fallen, productivity growth has fallen; so, long term trend is declining growth is declining in China and in the near term clearly, the trade war with the US is hurting but it's probably not, it'd be an exaggeration, should we say, to blame the trade war for China's slowing growth because this has been going on for a long time now, over 10 years. Nevertheless, we do think that the government won't let growth fall too much, and will already put in place some stimulus, but it may put in place more stimulus to prevent growth from falling much more. That said, we do expect growth to be below 6%, next year in 2020, for the first time in a long time.
Our fifth prediction for 2020, is that the emerging world, the emerging markets, will tread water. They're facing major headwinds; certainly the trade wars are hurting them. China's slowing growth is hurting them. Weak growth in the developed world is hurting them as is the slide in commodity prices. Those factors aren't going to change that much in 2020. They may improve a little bit so this means that growth in the emerging world will remain fairly weak but it's probably not going to get much worse either.
Our sixth prediction for 2020 is that commodity prices will slide. As the first five predictions indicated, growth is going to remain fairly weak but then there's excess supply basically in many of the commodity markets. And even though the attempts to cut back on production, let's say in oil markets, that's not enough to compensate for the weakness in demand. So, we do expect commodity prices, as a whole, to fall between 3% and 3.5% in 2020.
Our seventh prediction for 2020 is that because of sliding commodity prices, because of weak demand, that we do not see any surge, or any kind of major increase, in inflation rates. So, inflation will remain quite subdued as a result of these trends in the global economy and there's not gonna be any kind of breakout. Now, there are some early signs that wage inflation is beginning to pick up a little bit in the US and Germany. Unemployment rates are at historic lows and so we will start to see some upward movement, very gradual, in wage rates. But this is unlikely to translate into higher prices or higher price inflation, mostly because there's still a lot of excess capacity and weak growth around the world.
Our eighth prediction for 2020 is that the easing cycle by central banks will probably come to an end. It looks like growth is stabilizing an certainly the worries that were in place about growth and the potential for recession seem to have diminished somewhat. So in that sense, I think there's a consensus that the Fed and other central banks will probably not do a lot easing and it is even possible that by the end of 2020, you might even see the Fed raise rates; there's about a slightly better than 50/50 chance that they'll do that. But the point is that the need for further ease, seems to be less now because growth seems to have stabilized.
Our ninth prediction for 2020 is that the dollar will appreciate some more, not a lot, a little bit, maybe 3% or so, more or less. And this is almost entirely due to fundamentals. The US is growing faster than most developed economies. US interest rates are higher than in most developed economies. And so from that perspective, this is because of fundamentals and not because of any kind of currency manipulation. We see those conditions, these growth differentials, and interest rate differentials will favor the dollar a little bit in 2020. But then those advantages, those differentials, will begin to narrow as other economies start to grow a little more, as other Central Banks begin to raise interest rates in time. So by 2021, 2022, we would expect the dollar to begin a gradual slide.
Our 10th and last prediction for 2020, is that even though policy uncertainty is high, we don't think that recession is the most likely scenario for 2020. And a lot of that has to do with the fact that Central Banks seem willing and able to jump him to do what's needed to protect against recession. Now, that's not to say there aren't risks, there are. The trade war could get out of control, that that could hurt growth, potentially trigger recession; debt levels are rising everywhere, mostly because interest rates are so low that a lot of people are loading up on debt and that's a vulnerability. So yes, the risks are high, but we think right, that the probability of a recession in 2020 is only about one in five. Whereas a year ago, we were saying that the probability of recession was one in three. So, that recession probability has come down quite a bit.
If there's one thing that everyone should keep an eye on, it is in fact, the risk of a policy mistake. And in particular, the risk of a trade policy mistake. We're not out of the woods yet in terms of the trade war. The good news is while it's done some damage, it's not been horrific but that's cold comfort, if you willm because this thing could get out of control very, very easily. It hasn't so far, which is the good news, but the bad news is the risk is it's quite high that it could get out of control.
