M is for "Mediocre" and "Monetary Policy"
If you ask 10 economists in Tokyo how they see the economy in 2020, almost all of them will tell you they expect a mediocre year. With some relief on the Brexit issue and a temporary trade agreement between the US and China, imminent crisis seems to have receded.
In Japan, the Tokyo Olympics and Paralympics are expected to boost tourism and domestic spending. But risks persist. We’re seeing slowdowns in production, shrinking corporate profits, lower wage hikes and even a slight drop in jobs in the manufacturing sector. The economy is forecast to slow in the latter half of 2020, carefully avoiding a crash but still without prospects for stronger growth. Continuing from 2019, monetary policy options remain limited. The global economy is expected to grow around 3 percent, which is not that great, but not that bad.
I is for "Investment Reexamined"
Aggressive monetary easing in the major economies -- the US, Europe and Japan --- have led investors to throw their cash at promising startups or unicorns, like Uber and Airbnb. The number of unicorns has grown to more than 400 this year, according to CB Insights. But investors are now wondering if their valuations are too high.
The US real estate rental company, WeWork, once one of the most celebrated unicorns, was valued at more than 40 billion dollars and is now reported to have shrunk to a quarter of that. Investors and analysts are beginning to wonder if we're seeing a startup bubble that’s starting to burst. They are now looking at whether startups are recording profits rather than just boasting about sales. Easy money has been the norm for a decade, but in 2020, we may see investors making adjustments toward more healthy investment.
C is for "China” and “Currencies"
China will continue to be in the spotlight in 2020. Local government debt is piling up and some local government financing vehicles went bankrupt in 2019. Household debt and non-bank lending are also on the rise. While many economists predict that China will maintain growth of around 6 percent next year, reaching a “first-stage" trade agreement with US President Donald Trump alone will not help solve the country’s mounting problems.
We have yet to see if 2020 also marks the launch of a digital yuan. Beijing officials are rushing to create a new central bank digital currency as US IT giant Facebook makes plans for its own global digital currency.
E is for "Elections"
The US presidential election will be the center of attention in 2020. The US economy remains solid: more solid than analysts had earlier predicted. The Federal Reserve’s preemptive interest rate cuts might have worked. Trump’s approval rating is stable despite the impeachment process. Polls show that 4 out of 10 Americans still support him.
In Japan, we have yet to see if Prime Minister Shinzo Abe will call a snap election to maintain his hold on power and avoid becoming a lame duck administration. Abe is now the longest-serving prime minister in Japanese history.