Global monetary easing cycle seen ending in 2020

MANILA, Philippines — Monetary easing worldwide will likely end in 2020, with indications that an economic slowdown is “bottoming out” and signs of solid growth emerging in the United States, according to macroeconomy research firm IHS Markit. 

In a report, IHS Markit said growth in the global economy could be expected to slow down further from 2.6 percent in 2019 to 2.5 percent in 2020, but would begin to accelerate in the late part of 2020 before picking up to 2.7 percent in 2021 up to 2022. 

“The global monetary easing cycle will, therefore, likely come to an end. Signs of solid growth in the United States, including via IHS Markit’s PMI Surveys, mean the Fed may not need further insurance cuts. In fact, there is a better than 50/50 chance that the Fed will raise rates at the end of 2020 and again in 2021,” said the brief. 

“While the challenges facing the European Central Bank and Bank of England are more complex, the recent strong opposition to negative rates may imply that any easing will proceed cautiously,” it said. 

IHS Markit noted that despite the presence of historically high levels of policy uncertainty, recession risks have fallen. 

Early this year, IHS Markit assessed that the risk of a global recession occurring was 30 percent, but as central banks worldwide injected liquidity throughout the year, the risk of a recession has been lowered to around 20 percent. 

“Nevertheless, risks to outlook remain daunting,” the firm said. 

In the near-term, IHS Markit noted that the biggest threat is either an escalation of the US-China trade conflict or its spread to other parts of the world, especially Europe. 

Other threats to the global economy include high and rising corporate debt in both developed and emerging markets as expansion would be put on hold if interest rates begin to rise. 

“A growing concern is the record level of debt in the emerging world, encouraged by low global interest rates. This will only become a significant problem when interest rates begin to rise. In the meantime, central banks in the emerging world have more room to cut interest rates, if they need to,” the report said. 

The Bangko Sentral ng Pilipinas (BSP) in December kept policy rates steady as inflation outlook for the next two years continued to lean slightly toward the upside. 

The Monetary Board kept interest rate on the reverse repurchase facility at four percent, while the rates on overnight deposit and lending facilities were left unchanged at 3.5 percent and 4.5 percent, respectively.

In all, the central bank slashed interest rates three times by a cumulative 75 basis points this year, partially unwinding a tightening cycle that saw rates jump by 175 basis points last year.

The BSP has said the balance of risks to the inflation outlook continue to lean slightly toward the upside in 2020 and toward the downside in 2021.