The slowdown in economic growth observed in 2019 may not yet be over. Forecasts for 2020 indicate that global GDP growth should come in at 2.5% – a long way from recession but still subdued by the standards of the past decade. In addition, long-term inflation expectations have been declining further. Ongoing geopolitical uncertainty and the effects of a dissipating U.S. fiscal stimulus may lead to a further slowdown in 2020 compared with what is currently expected.
The growth outlook appears more subdued in mature economies while emerging markets are likely to gain some momentum. In the U.S., economic growth expectations are at 1.6% for 2020, down from an expected 2.3% in 2019. The U.S. economy remains in a good place, but momentum is undeniably slowing and the Fed acknowledged that further easing would occur in case of a material reassessment of the growth outlook. China may grow at 5.7% in 2020, down from 6.1% in 2019, but the improved sentiment around trade talks with the U.S. seems to have reduced downside risk.
The European economy may continue to grow slowly, and forward-looking indicators suggest that growth may remain subdued also in 2020, with domestic demand remaining supportive, but industrial production and exports stalling. This is most evident in Germany, but the dynamic is now spreading to other countries as well. Looking at other major Eurozone economies, growth may remain supportive in France and Spain, while in Italy GDP growth could be little above zero. For 2020, we expect GDP growth in the Eurozone to slow to 1% from 1.2% in 2019. The ECB announced a broad stimulus package to support the deteriorating growth and inflation outlook.
We expect the ECB to maintain an accommodative stance for an extended period and Eurozone bond yields to remain lower for longer. In the United Kingdom, a pick-up in wage growth and a cooling in inflation has supported household spending, with GDP growth at an estimated 1.3% in 2019. The GDP forecast for 2020 is at 1%, as exports may continue to slow down.
Beyond Brexit, rising trade barriers and a weaker outlook for global growth may weigh on the European economy. Although unlikely, if Eurozone inflation pressures started to rise, the European central bank may surprise markets to the upside, pushing bond yields and the euro higher, which in turn could slow growth.
Infrastructure Market Outlook
The market environment remains driven by comparatively low returns from traditional asset classes and a weaker economic growth environment. In 2019, long-term investors have continued to increase allocations to private infrastructure. They see private infrastructure as an asset class that has historically offered diversification benefits, long-term cash flow visibility matching long duration needs, and a yield premium over government bonds.
- Unlisted infrastructure fundraising achieved a new record in 2018 with funds securing over USD 90 billion, largely driven by a few mega-funds reaching a final close. In 2019, fundraising continued to prove resilient, but in the absence of mega-funds currently in the market, we may observe a slowdown in fundraising compared with 2018.
- In 2019 year to date, seventy-one unlisted infrastructure funds had secured USD 54 billion, but the year-end total is likely to be closer to USD 70 billion, as an acceleration in fundraising is expected by the end of 2019. The fundraising time in the market seems to have shortened: about 83% of funds closing in 2019 were in the market for less than two years compared to 70% in 2014.
- Looking at strategies by geography, European and North American strategies may continue to dominate private infrastructure fundraising, while we observe that the preference of long-term investors seems to be increasingly shifting from core strategies into the core plus and value add market segment.