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Yardeni Predicts No Recession, Steady Economy, Low Inflation

Yardeni Predicts No Recession, Steady Economy, Low Inflation
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By    |   Wednesday, 08 January 2020 03:53 PM

Newsmax Finance Insider Ed Yardeni predicts stocks will continue to rise this year amid little chance of a recession, and low inflation fueling steady economic growth.

“As an amateur numerologist who also happens to be an economist, I’m thinking that the number 2020 strongly implies zero chance of a recession, with real GDP growing around 2.0% while inflation remains just below 2.0%,” the Yardeni Research president recently wrote for MarketWatch.

“That just happens to be my outlook for 2020. Though I would never say “never” when it comes to predicting recessions; they are always possible. But I don’t see a recession in this year’s U.S. economy. That’s because credit crunches invariably cause recessions. With the major central banks on course to increase the sizes of their balance sheets in 2020, a credit crunch seems highly unlikely. Will 2020 turn out to be much like 2019 for the economy and financial markets?” he pondered.

He found six factors to watch:

  1. Political assumptions. “Politically, for the U.S., 2020 is likely to be just as acrimonious as it was 2019. Nevertheless, the U.S. economy continues to perform well despite all the noise coming out of Washington,” he said.
  2. Real GDP: “On a year-over-year basis, real GDP growth in the U.S. has been hovering around 2.0% since the first quarter of 2010. I am projecting that real GDP will increase 2.5% this year, a bit better than last year’s 2.3%,” he said.
  3. Productivity: “The surprise in 2020 is likely to be that a tightening labor market boosts productivity, which would allow nominal wages to continue increasing faster than consumer prices,” he said. “Real GDP growth might be about the same in 2020 as in 2019, but more of it is likely to be based on productivity than labor input. That would be a positive development for keeping inflation down, while boosting real wage growth and the profit margin. It would be a win-win-win situation for sure.”
  4. Inflation: “In my 2020 outlook, inflation remains dead or at least in a coma for another year.”
  5. The Fed and interest rates: “In my scenario, the Fed is likely to remain on hold through this year’s presidential and congressional elections.”
  6. Rest of the world: “I expect somewhat better growth overseas during 2020 than was the case in 2019.”

Meanwhile, Reuters explained that investors enter the new decade with a spring in their step, after watching world stocks add over $25 trillion in value in the past 10 years and a bond rally put $13 trillion worth of bond yields below zero.

There's unease, along with all the euphoria. The current economic cycle is already the longest in U.S. history and a recession looks inevitable in the new decade -- which also will mark 100 years since the Wall Street crash of 1929.

So what will markets do in the new decade?

A decade of rock-bottom interest rates didn't revive growth and inflation in developed nations, but they certainly inflated markets, as prices for bonds, equities and real estate show.

The inequality they spawned have also triggered a widespread backlash against globalization. The result is a de-globalizing world, or as Morgan Stanley puts it, "slow-balisation."

The bank expects tech investments to outperform, in particular smaller internet firms in China, as protectionism hurts larger rivals.

But it predicts less exciting returns -- "a lower and flatter frontier compared to prior decades, and especially compared to the ten years post-GFC (global financial crisis)."

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.

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Newsmax Finance Insider Ed Yardeni predicts stocks will continue to rise this year amid little chance of a recession, and low inflation fueling steady economic growth.
yardeni, recession, economy, inflation
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2020-53-08
Wednesday, 08 January 2020 03:53 PM
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