Vanguard Economic and Market Outlook 2020: Lower Growth Expectations in the New Age of Uncertainty

• Vanguard forecasts continued slowdown in global growth but Canada a bright spot among developed economies: Canadian growth forecast at 1.6%, U.S. growth forecast at 1.0%, Eurozone growth forecast at 1.0% and China growth forecast at 5.8%
• Canadian equity market returns forecast to be 3.5%-5.5%, annualized over the next ten years
• Canadian fixed income returns likely to be 1.5%-2.5%, annualized over the next ten years

TORONTO, Dec. 10, 2019 /CNW/ - Global growth is set to slow next year, driven by U.S. and China trade concerns and continued political uncertainty leading to depressed global economic activity, according to the Vanguard Economic and Market Outlook 2020.

"Investors should prepare for a lower-return environment over the next decade, with periods of market volatility in the near-term. We expect uncertainty stemming from geopolitics, policymaking, and trade tensions to undermine global growth over the coming year," said Todd Schlanger, senior investment strategist at Vanguard Canada. "For Canada, the picture is slightly rosier, with a resilient labour market and robust wage growth leading to growth levels stronger than most developed economies in 2020, with a slight improvement over 2019."

Slowing economic growth globally but Canada a bright spot
The continued slowdown in global growth intensified in 2019, driven by a deterioration in the global industrial cycle as trade tensions escalated, especially between the U.S. and China. Globally, uncertainty has been the defining feature of politics and monetary policy, with an add-on effect to both production and investment. 

Canadian growth is forecast to be around 1.6% in 2020, slightly higher than the expected growth rate in 2019. Canada's trade-oriented economy remains vulnerable to developments in global trade as well as continued growth of the U.S. economy.

"Interest rates will remain central to the Canadian economy next year and have shifted from a headwind to a tailwind for the economy, as lower lending costs improve housing affordability, stimulate business growth and moderate debt service costs," adds Schlanger. "We see a brighter picture for the housing market as a result of these lower financing costs, combined with consistent income growth. We anticipate employment growth to moderate but still stay at reasonable levels in 2020."

Global central banks have moved from expected policy tightening heading into 2019, to additional policy stimulus amid weakening growth outlooks and inflation shortfalls throughout the year. Vanguard expects the Fed to cut the federal funds rate by 25 to 50 basis points before the end of 2020. The Bank of Canada on the other hand, is likely to maintain current interest rates throughout 2020 as it balances the tradeoffs between supporting short-term growth and moderating high levels of household debt. Though Canadian growth is stable, household vulnerabilities and a high exposure to broader global economic uncertainty skew the balance of risks to the downside.

U.S. growth is forecast to decelerate to around 1% in 2020, avoiding a technical recession but below normal trend growth of 2%. China too is expected to slow to a below-trend pace of 5.8% in 2020 – beneath its own 6% target. In the Eurozone, growth is likely to remain weak at around 1.0% in 2020, due to the trade environment, and the drag from Brexit.

Outlook for Canadian investors in 2020
With regard to asset returns over a ten-year-period, Canadian equity market returns are forecast to be in the 3.5%-5.5% annualized range, with Canadian fixed income likely to be 1.5%-2.5% annualized over the same period. These returns are lower than the prior ten-year period, predicting a more challenging market period ahead for investors.

"As we enter into this new age of uncertainty, Canadian investors should prepare for volatility that could result from a lack of clarity on trade and slowing economic growth in the U.S. that may negatively impact Canadian exports and weaken commodity prices. Despite this, we see stability in the domestic housing market and favourable conditions relative to other developed markets with better capacity to absorb an unexpected economic shock," concluded Schlanger. "Investors can't control the markets but they can control their investment strategy. By maintaining a diversified portfolio, keeping investment costs low, and focusing on the long-term while tuning out the daily noise, investors can improve their chances of investment success."

Click here to see the full Vanguard Economic and Market Outlook for 2020

About Vanguard

Canadians own CAD $39 billion in Vanguard assets, including Canadian and U.S.-domiciled ETFs, Canadian institutional products and Canadian mutual funds. Vanguard Investments Canada Inc. manages CAD $23 billion in assets (as of October 30, 2019) with 39 Canadian ETFs, four mutual funds, 12 target retirement funds and eight pooled funds currently available. The Vanguard Group, Inc. is one of the world's largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages USD $5.9 trillion (CAD $7.5 trillion) in global assets, including over USD $1.1 trillion (CAD $1.4 trillion) in global ETF assets (as of October 31, 2019). Vanguard has offices in the United States, Canada, Mexico, Europe, Australia and Asia. The firm offers 423 funds, including ETFs, to its more than 30 million investors worldwide.

Vanguard operates under a unique operating structure. Unlike firms that are publicly held or owned by a small group of individuals, The Vanguard Group, Inc. is owned by Vanguard's U.S.-domiciled funds and ETFs. Those funds, in turn, are owned by Vanguard clients. This unique mutual structure aligns Vanguard interests with those of its investors and drives the culture, philosophy, and policies throughout the Vanguard organization worldwide. As a result, Canadian investors benefit from Vanguard's stability and experience, low-cost investing, and client focus. For more information, please visit vanguardcanada.ca.

SOURCE Vanguard Investments Canada Inc.

please contact: Matt Gierasimczuk, Vanguard Canada Public Relations, Phone: [phone], [email protected]