Last week, the US and China appeared to have made progress with trade talks in an attempt to quell the two-year trade war between the nations. In essence, America’s ongoing trade skirmish with China caused a decline in business confidence and investment. Moreover, this has caused a ripple effect, which has led to a slowdown of the global economy, largely contributed to the decline of global manufacturing and trade. Unfortunately, no one has been gifted with the ability to foretell what the future will bring. In this article, financial experts discuss four things that could go wrong in the economy in 2020.
An Increase In Housing Costs
“A potential threat to the economy is an increase in living costs that exceeds wage increases. The largest component of this increase are housing costs – this is particularly acute in American coastal regions such as New York state and California as well my own city of Toronto, Canada.
This is a hidden threat because the low unemployment rate in the U.S. and Canada gives an impression of a healthy economy. However, this could be misleading; despite a low unemployment rate, people have less disposable income after paying housing costs. This means less money left over to purchase goods and services and to service debt payments, both of which are bad for the economy. Therefore, rising housing costs are a potential hidden threat to the economy.
How do I know this? I'm a consumer insolvency practitioner in Toronto, Canada.
The vast majority of my clients are employed, with many in that subset earning very good incomes. Despite this, they come to my practice in search of debt relief because over the past few years, the rate of increase in housing costs has greatly exceeded the rate of increase in wages. My average client spends between 40% – 50% of her income on rent or on the carrying costs of homeownership.
Consequently, after paying for housing, transportation, and food, there's nothing left for debt servicing. So she ends up seeing someone like myself.
This is borne out in recent consumer insolvency data – in Canada, consumer insolvencies have increased to their highest level since the Financial Crisis. A similar phenomenon is happening in the United Kingdom. Therefore, this might very well be a global phenomenon due to a rapid increase in housing costs in major global cities since the Financial Crisis.”
Victor Fong, President, Fong and Partners Inc, Licensed Insolvency Trustee
If A Country Like China Suddenly Establishes A Trading Barrier To Western Countries, Many Companies Could Go Out Of Business
“Personally I have one larger concern regarding the economy of 2020/the future.
The western world is insanely dependent on the Chinese as well as the Indian and Japanese manufacturing market.
My company makes heavy use of imported goods from some of these areas, and due to recent political happening especially in China, the future is uncertain.
If a country like China suddenly establishes a trading barrier to western countries, many companies could go out of business.
One can only hope that they are as dependent on us as we are on them, to make sure no such thing happens, the alternative could cause a global financial crisis and shortage of various products.”
Nikolaj Nielsen, CEO, avXperten
The IMF Is Concerned That Higher Loan Costs And Lower Levels Of Consumer Spending Will Mean That More Corporations Go Bust
“Consumers are viewing the coming year as a difficult period and not the moment to buy much, apart from life’s basics. They did the same in the years before 2008, when property prices began to stagnate as buyers reached their borrowing limits and car sales slowed.
Turns the spotlight onto the IMF, which is concerned that higher loan costs and lower levels of consumer spending will mean that more corporations go bust. Its remedy has been for governments to pass reforms that allow more jobs to be created. However, the growth of flexible working has singularly failed to increase wage rates.”
Maksym Babych, CEO, SpdLoad
Underestimating Commercial Lending Risks Is One Big Thing That Can Go Wrong With The Economy In 2020
“Underestimating commercial lending risks is one big thing that can go wrong with the economy in 2020. A lending blowup can have disastrous effect on the economy and any lender who isn’t prepared. Similar to what happened in the Great Recession across the banking system, not mitigating lending risks can have a lasting impact on the global economy.
Financial stress continues to climb for private companies and many lenders have never managed loan portfolios in a slowing or potentially recessionary environment. Lenders can get caught off guard if they aren't prepared for a downturn. Here’s why:
Main Street delinquencies and defaults continue to climb upward – with retail, transportation and manufacturing hitting their highest stress levels in the last 8 years.
An explosion of new, non-bank lenders and credit unions holding commercial loans can pose new risks to the market and the availability of capital.
Trade war and tariffs continue to pressure small, private businesses, which make up 99.7 percent of U.S. employers.
Finding qualified labor is a top small business problem, impacting future growth and hiring.
In a late market cycle, managing a large pool of loans can be fraught with risk. If lenders aren’t prepared, they can find themselves extremely vulnerable in a market downturn, leading to more than one bad thing that can go wrong in 2020.”
Bill Phelan, SVP and General Manager, PayNet Inc
Given the current economic uncertainties, one way to hedge against those uncertainties and diversify your portfolio is investing in gold. It certainly explains why gold makes sense in an IRA. For those investors who are interested, learn more about the Top Gold IRA companies so you can understand your options within the space.