Issue date: 2020-03-31
The latest view reaffirms the expectation for global growth to edge higher this year, even as the coronavirus outbreak has introduced uncertainties. Past epidemics have seen V-shaped economic recoveries – a pattern we expect see this time as well. Yet the depth and width of the “V” are highly uncertain. This outbreak could be more disruptive than past ones because it could be more severe, and because of greater reliance on global supply chains.
BlackRock Growth GPS for developed market economies, 2016-2020
Sources: BlackRock Investment Institute, with data from Consensus Economics, February 2020. Notes: The Growth GPS shows where consensus GDP forecast may stand in three months’ time, shifted forward by three months. Forward-looking estimates may not come to pass.
Growth prospects have started to improve in key developed economies since late 2019. Our BlackRock Growth GPS, which aims to give a read of where consensus forecasts of real economic growth may stand in three months’ time, has shown an inflection in growth expectations for the U.S., the euro area, Japan and the UK (See the chart above). Growth momentum was also starting to recover in emerging markets (EM) late last year. Yet the coronavirus outbreak has emerged as a principal risk to our global growth outlook. Economic growth and markets have historically responded with a V-shaped pattern to temporary disruptions caused by past epidemics, with the recovery in economic activity often fueled by the pent-up demand in retail and a restart of manufacturing sector. Yet key uncertainties around this outbreak may make history an unreliable guide. It is still too soon to gauge the magnitude and duration of this outbreak as well as its overall impact on the global economy.
The short-term impact from the coronavirus outbreak – thus far mostly stemming from China’s containment measures – will likely play out in coming quarters. Based on what we now know, we see it delaying, but not derailing, a growth uptick that should take root this year. China’s central bank has already started to ease policy, and we are likely to see more support from Chinese authorities to shore up growth, yet an ongoing desire to rein in financial excesses leaves open the size and shape of the stimulus. Another key development to watch: How extensively will the outbreak spread beyond China?
The coronavirus outbreak may also pose medium-term risks. Potential disruptions to global value chains could drive up prices – and push companies that suffer from such disruptions to build up higher stockpiles and start to rethink prevalent just-in-time inventory management systems. This adds to the potential disruptions to global supply chains from trade protectionism. Over time, such supply shocks could lead to a change in the macro regime. One possibility: Growth slows and inflation rises. This might pressure the negative correlation between stock and bond returns over time, reducing the diversification properties of government bonds.
Investing in Megatrends
Despite all the uncertainties and challenges in the world, investors find themselves embracing investment ideas that are emerging yet is almost certain to happen – this is Megatrends Investing. Megatrends are structural shifts that are longer term in nature and have irreversible consequences for the world around us. The awareness of megatrends in investment processes offers real insights. Because of that, megatrends influence our investment decisions – from the businesses, industries and countries we invest in to the way we go about finding opportunities.
Why FinTech as a Megatrend Investment?
Growth in digital payments is one of the biggest opportunities for the fintech industry. Cash remains the primary means of payment (56% market share among global consumption expenditures, over 67% of transactions are still made in cash within 4 of the 5 largest European countries1) but this is rapidly changing, providing a large opportunity for the digital payments companies – it’s estimated that over 1 trillion non-cash payment transactions will take place by 20222, far greater than the 539 billion transactions in 2017. We see three key areas of drivers for the trend to continue:
The projected growth of digital payments is a truly global trend and it’s just beginning……56% of global transactions are still made by cash / check which creates a large market for expansion7
1 Equity Research, FinTech & Payments primer volume 12. August 18, 2018.
2 Capgemini 2019 World Payments Report Barclays
3 McKinsey & Company, The influence of ‘woke’ consumers on fashion, February 2019
4 The New Digital Demand in Retail Banking, Oracle Financial Services Global Retail Banking Survey 2018
5 Refinitive Perspectives, June 2018.
6 BlackRock, Factset data as at 31 July 2019.
7 Chart and Stat Source: Nilson Report, KeyBanc Future
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