2020 annual forecast A global overview

Uncertainty surrounding the outcome of the U.S. 2020 presidential and congressional elections will shape the actions and decisions of countries around the world. A contentious election year in the United States means that even as other nations deal with their own domestic, regional and global concerns, they must take into account the opportunities and risks in decisions that overlap U.S. interests, considering the possible dramatic post-election change in U.S. posture.

“Rogue” nations such as Iran and North Korea, and non-state actors including the Taliban and the Islamic

State, will assess ways in which they might leverage their behavior to exploit perceived weaknesses in U.S. foreign policy, while also calculating the risks or benefits in making deals with the Trump administration, or waiting for a possible change in U.S. leadership. If they press to accelerate a U.S. response in their favor, the risk of aggressive posturing to include military and militant action will grow along with the likelihood of miscalculation of U.S. responses to aggressive tactics.

China, Russia and other U.S. competitors, as well as Washington’s partners in Europe and Asia, will approach making or rejecting commitments with the United States in 2020 with more caution until there is certainty about the next administration. These countries will consider their much longer-term relationship with the United States, seeking to avoid obligations that could get overturned or taking actions that assume a change of White House leadership.

Whereas Stratfor’s 2019 forecast highlighted several challenges to global economic growth, in 2020, we are less sanguine about the ability of the world to avoid localized economic shocks. Social and political stresses stemming from slowing Chinese economic growth rates, rising protests over social inequality and economic austerity programs across Latin America, North Africa and the Middle East exacerbated by sluggish commodity prices and Brexit-related uncertainty could contribute to localized economic instability.

Uncertainty over the status of global trade agreements and the limited effectiveness of fiscal and monetary tools available to governments already running at extremely low interest rates will compound these local issues. While a single crisis at one time would be largely manageable, should crises occur in rapid succession or economic instability overlap in several places at once, it could rapidly snowball with global effect.

Though we expect some partial easing of U.S.-China trade tensions, the deeper systemic differences between the two will not be resolved in 2020, if at all. The differing economic agendas of the United States, China and Europe leave little room for cooperation, increasing global economic risks. A growing global competition centered on technological development will intensify political battles and further strain economic stability. The U.S. elections will further highlight the use of social media and other mass communication tools to spread disinformation and sow discord.

Competition over technology supply chains, and differing regulatory constructs surrounding the intersection of national security, personal privacy and business interests, will likely leave the United States, China and Europe even further apart than they are today, putting global technology supply chains under stress, further increasing economic espionage and highlighting the stark differences in approach to forming a global regulatory consensus.

Deeper examinations of these issues and the risks they pose form the foundation of our 2020 Annual

Forecast, which will be available on Stratfor Worldview Jan. 6. The highlights of the forecast presented below serve to illuminate some of the key areas that Stratfor analysts have determined could have major impacts on the global system in the year ahead.

Global trends Economic drivers

A push for final trade deals before US elections

President Donald Trump will push to finalize as many deals as possible before U.S. voters decide in November whether he will return to the Oval Office. In areas where negotiations struggle to make headway, the United States may implement more aggressive policies to strengthen its negotiating leverage. That strategy, however, would carry the risk of damaging Trump’s electoral support if White House actions demonstrably drag down the U.S. Economy.

That could temper the U.S. posture in the event that certain talks break down closer to elections. Economic headwinds globally, a cooling stock market and more economic pain and bankruptcies in the Midwest and among American farmers will temper the U.S. negotiating posture in trade issues. The U.S. position on Iran and North Korea is less likely to soften as the administration and Congress push for stronger deals. Uncertainty injected into global trade policy by aggressive U.S. actions will continue to be a chief driver of economic weakness throughout the year even as the U.S.-China trade deal injects some optimism for growth.

A number of other downside risks that could easily be triggered in 2020 will keep a lid on global economic growth. While China has been able to manage its economic slowdown, its coping strategies rest on a number of risky tactics, raising the possibility that it will experience a sharp downturn, particularly if its trade war with the United States intensifies. But it’s more likely that while growth in the Chinese and U.S. economies will slow, neither will undergo a sudden contraction.

Economic growth in Western Europe will continue to be anemic, likely remaining below 1 percent for the year. A significant factor in that weakness will be Germany’s continued economic malaise and Berlin’s unwillingness to use significant fiscal stimulus to counter it. Emerging markets are also set for a difficult 2020. Argentina will be mired in an economic crisis. Brazil and India will each struggle to make the structural reforms necessary to resume higher levels of growth.

The Turkish economy, driven by unsustainable levels of stimulus, may continue its slow recovery but no quick acceleration is likely. Continued global economic weakness will help fuel conditions for more large-scale protests in developing countries with economic inequality and weak governance. Other factors impeding global growth are the limitations many countries face in using strong monetary or fiscal response as economic stimulus.

In the developed world, the use of monetary policy and low interest rates to generate growth has largely exhausted its utility. In some countries with room to employ fiscal stimulus, such as Germany, political opposition will likely keep that option off the table.

Despite a deal with China, the trade offensive continues

With final approval of the United States-Mexico-Canada Agreement imminent and a phase one deal with China initially agreed upon, Trump has clearly made finalizing trade deals a key goal ahead of the 2020 elections. The United States and China are unlikely to follow their tariff-reducing deal with a more comprehensive trade arrangement in 2020, as China is unlikely to make significant concessions on U.S. demands for structural reform.

Once the phase one deal is finalized, it is likely to remain intact in 2020, but disagreements over interpretation and even a potential small-scale escalation (such as a limited reintroduction of tariffs) will remain a possibility. But because of Trump’s desire to make the deal a centerpiece of his trade policy’s successes in the November elections, any escalation will be tempered as to not completely upend the deal.

Meanwhile, US-EU trade talks will stall over disagreements on agricultural products, and the United States will place more tariffs on European goods. The White House could rely on a number of justifications to implement the tariffs, such as France’s digital services tax or U.S. national security concerns over auto imports. But compared to Washington’s trade war with Beijing, the scope and scale of its new trade assaults against Europe will remain small.

U.S. efforts to demobilize the World Trade Organization’s appellate body by denying it sufficient members to hear dispute cases will stymie the appeals process through the mechanism throughout 2020. U.S. efforts to force new negotiations over WTO reform may start to gain traction over the year, but in the meantime, the WTO’s members will try to keep dispute cases moving by modifying the settlement process or finding alternatives.

The nonexistent appeals process will prompt other countries to follow the U.S. lead in employing aggressive and unilateral action in trade disputes. This would include a European response to U.S. tariffs against Airbus and the ongoing WTO case involving U.S. subsidies to Boeing.

The competition for tech supremacy rages on

Amid growing competition among Europe, the United States and China for technological supremacy, more tech sectors will be classified as national and economic security priorities. This competition will continue to fray global tech supply chains. As auctions, rollouts and infrastructure buildout for 5G data networks expand significantly in 2020, the United States is likely to maintain its pressure on China’s Huawei

Technologies by continuing to sharpen export controls to limit Huawei’s access to U.S. technology and suppliers. Washington will also push its allies to similarly restrict the company, including barring its equipment from 5G networks, but those efforts will meet with limited success. Instead, most countries will try to appease both China and the United States by allowing Huawei access to their networks, albeit limiting the use of its equipment in those networks, increasing the cost of the global 5G rollout.

Eventually, the United States could take punitive action against countries that continue to use Huawei’s equipment, further fraying U.S. alliances. Huawei represents but one facet of the sprawling global tech competition that will continue to rage between the United States and China. There is much at stake: Winning the race to develop a specific new technology will allow the victor, whether Washington or Beijing, to begin to set that technology’s global standards by default.

China, Europe and the United States will prop up their domestic tech companies by using a wide range of support mechanisms and restricting access to foreign investment. EU efforts to expand the regulation of U.S. tech companies will increase in 2020. In response, Washington will open more investigations looking into anti-competitive behavior and could impose punitive trade measures.

The European Union will also seek to increase control over efforts by state-backed Chinese companies to purchase European companies in strategic sectors. The United States will use increased sanctions and export controls to cut down China’s tech sector, particularly for companies involved in places like Hong Kong and Xinjiang and those involved in the development of strategic technologies, such as artificial intelligence.

Geopolitical hotspots to watch

The Iranian – US escalation will stop short of outright conflict

Iran and the United States will most likely avoid direct military conflict even as Tehran significantly ramps up its nuclear program in response to U.S. sanctions pressure. Iran will continue its aggressive strategy of targeting regional oil and gas infrastructure and the Strait of Hormuz to up the price of the United States maintaining its harsh sanctions strategy.

Iran’s retaliatory strategy risks escalating into a military confrontation even though both the United States and Iran will seek to avoid one. Iran’s progressive escalation in its nuclear program could lead it to follow the United States in withdrawing from the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. That would force Europe to consider imposing sanctions on Iran or trigger the nuclear deal’s dispute resolution mechanism. If the JCPOA remains intact, the U.N. conventional arms embargo on Iran would expire in October 2020 pushing the United States to take aggressive unilateral measures to try to enforce one.

A year of calm will mask Brexit’s future disruptive potential

The new, Conservative Party-led British Parliament will approve a Brexit deal, and the United Kingdom will leave the European Union in early 2020. Initial disruptions will be minimal because the United Kingdom will remain in the EU single market in 2020, providing a period of certainty for global markets.

London and Brussels will spend the year in talks over a free trade agreement, but the complexity of the negotiations will make it difficult for them to reach an accord in 2020. Key friction points include Brussels pushing London to keep the norms and regulations of the single market and London pushing the European Union to include as many services as possible, a provision the European Union will resist.

Without a trade deal, uncertainty for global markets, supply chains and investors will again grow in mid-2020 as another cycle of waffling between the possibilities of extended negotiations or a disruptive turn to WTO tariffs begins.

Protests remain the new normal in Hong Kong

Hong Kong’s crisis will persist as the city’s new normal becomes prolonged political impasse and continued standoffs on the street. Sustained business disruptions, vandalism and the withdrawal of more foreign business and capital from Hong Kong will extend the city’s recession beyond 2020.

Besides stoking the overall rivalry between the United States and China in their trade war, the chronic acrimony in Hong Kong will allow other, more stable business hubs such as Singapore or even Malaysia to attract companies looking for alternatives. It will also spur China to further emphasize mainland economic centers such as Shanghai, Shenzhen and Beijing to reduce reliance on Hong Kong. For more on where Hong Kong is going, see this assessment.

Additional forecasts

The business risks of climate change will increase

Businesses and governments increasingly will be confronted with climate risk in 2020. This includes the risk of damage to business infrastructure, as well as corporate liability precipitated by governments and advocates who perceive corporate responsibility for natural disasters or pollution that accelerate climate change.

Additional risk to future profits and company growth may come from the decreasing use of fossil fuels as the energy transition to renewables takes firmer hold and the role of electric vehicles expands, leading eventually to peak oil demand at some point in the next 20 years.

The first check on the progress of national plans and goals under the Paris Agreement on climate change will come in 2020, illustrating just how little progress has been made, which will probably renew international attention. The year will also most likely mark the official exit of the United States from the accord. Many countries will not achieve their climate targets under the agreement.

But citizen activism will increase and more lawsuits will be filed to try to force change in national climate policy beyond the two dozen countries already contending with legal challenges. Government leaders will increasingly be compelled to more seriously consider changing behaviors and economic calculus. Activists will also target energy firms with legal challenges. Over the course of 2020, climate risk will be more consistently priced into credit decisions and capital markets.

Energy companies will continue to be forced to reevaluate future investment as policy shifts and judicial challenges begin to affect reliance on traditional hydrocarbon plants to generate electricity, especially in Europe. The new European Commission will prioritize aggressive renewable energy goals starting in 2020 as it seeks both to stimulate the lagging European economy and maintain Europe’s position as a global standard-setter for climate measures. Demand for electric vehicles will continue to grow in China, even as direct production and consumer subsidies wane.

The dismantling of strategic arms control will continue apace

No meaningful progress will be made in 2020 to extend or replace the New START treaty. U.S. policymakers will see little utility in sustaining arms control pacts in the face of Russian strategic arms developments and the exclusion of China in existing agreements.

The relentless development of new strategic arms technologies, which either fall outside of definitions employed in current treaties or alter the balance envisioned by them, will further erode the remaining value of existing treaties, and even those not up for renewal  such as the Open Skies Treaty could be abandoned.

Russia, in particular, will continue to test new strategic weapons systems throughout the year and could potentially accelerate the development of intermediate-range missiles now that the Intermediate-Range Nuclear Forces treaty has been abandoned. The Pacific region will offer the most immediate theater for potential deployments of new systems as they are developed, as part of a buildup of capabilities between the United States and China. Similar deployments by Russia in Europe cannot be ruled out, though they would face greater resistance from U.S. allies in Western Europe. Reluctance to divert resources from a potential buildup in the Pacific will lead the United States to prioritize that theater over raising the stakes in Europe.

OPEC + production cuts will have little practical effect

Oil producers that are part of the OPEC+ coalition have agreed to trim production to start 2020 in hopes of preventing oil prices from declining in the face of sluggish demand growth and rising supply. However the announced cuts of an extra 500,000 barrels per day (bringing total cuts to 1.7 million bpd) that OPEC+ plans to implement likely will not result in much, if any, oil actually coming off the market. Saudi Arabia and other producers will continue to fight an uphill battle to manage the market in 2020 and will extend production cuts through the end of 2020 but no dramatic further cut in actual production is likely.

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