by | Dec 19, 2019 | Portfolio Management

Last Updated: December 19, 2019

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The recent progress in trade talks between the US and China marks a dramatic turnaround in the trajectory the US economy will likely take. The US-China trade war represented a cloud over the global economy, affecting business confidence and investment. Although the fears surrounding the trade war have ostensibly been alleviated, no one possesses the gift of prophecy. Seeing as we haven’t the capacity to foretell the future, in this article experts discuss 5 things that could go wrong in the economy in 2020.

Regardless Of When The Recession Hits, However, One Thing We Do Know For Sure Is That It’s Going To Happen Eventually

 “We are currently experiencing the longest growth cycle in U.S. history. By its very nature, however, an economic cycle will, at some point, repeat itself again. That means this growth stage that we’re currently experiencing will eventually peak and shift to a contraction stage. In other words, a recession is coming.

In August 2019, the National Association for Business Economics released a survey finding that nearly 3 out of 4 economists expect a recession by 2021. The recession stage is totally normal and expected (and no reason to panic), but no one really knows exactly when it’s going to happen. It could be sometime in 2020, it could be later.

Regardless of when the recession hits, however, one thing we do know for sure is that it’s going to happen eventually. That means there’s no reason to be caught off-guard by the impact of the recession on your business. As a business owner, it’s important that you prepare your business now for what’s to come.

You’ve got to make sure that your company is financially healthy. You need to build cash and pay off debt. Consider getting a line of credit, which will allow you to take advantage of opportunities or protect you during a downturn. You also want to look at ways you can improve inefficiencies such as tightening your AR timeline, decreasing your average sales cycle, and otherwise trimming unnecessary expenses.

If and when a recession hits, the financial health of your company will be extremely important. Not only will a strong financial position enable you to weather the storm, but you will also be positioning yourself for the prosperity and growth that are sure to follow.

‘As sure as the spring will follow the winter, prosperity and economic growth will follow recession.’ – Bo Bennett”

Jody Grunden, CEO & Co-Founder, Summit CPA Group

Chinese Real Estate Slow Down 

“The Chinese real estate market is still to some extent centrally planned, with the government controlling development and stepping in to keep markets from experiencing too much volatility. The reason for avoiding volatility is obvious: the economy relies upon the real estate market in several ways, and volatility greatly impacts the broader economy. In 2017, housing sales comprised approximately 16.4% of GDP. Its large presence in the economy and the need to keep the market growing is caused primarily by four factors. First, there are few investment vehicles available to middle class Chinese, so property is the first and easiest way to use new wealth. Second, local governments finance their debt by promising revenue from future land sales. Third, companies purchase property to use as collateral for loans to expand operations. Finally, banks have made a large number of loans backed either directly or indirectly by real estate. Thus, Chinese citizens, the government, industry, and the financial sector are all dependent upon the real estate market maintaining and adding value.

China cannot slow construction without unleashing greater unemployment into the economy, but conversely cannot allow the unfettered construction to continue without causing a bubble burst that would have ripple effects on other key sectors. Additionally, cities that have received loans using future land sale revenue as collateral need to be weaned off of this revenue source before the incentives to mismanage the land become too great to stop, but central government guarantees of those loans might be unrealistic. Based upon its importance to the entire economy, the Chinese government could be expected to step in to avoid a collapse, and it did spend over a trillion dollars between 2014 and 2017 to keep its currency strong, so it has demonstrated it will spend when needed. If the problem is beyond its power to control, however, implications for the global economy, and especially Asian economies, would be significant.”

Kevin Rejent, Managing Director, Maggiore Risk

The Biggest Risk I See Is An Escalation Of More Trade Conflicts, Political Uncertainty, Oil Prices

 “Biggest risk I see is an escalation of more trade conflicts; most especially with China. As we get closer to the election in November, China may very well slow play any further trade agreements until they know who will be in the White House. These are far and away the two largest economies. They will drive the train for the rest of the world.

Political uncertainty-as it relates to tax policy, regulations, etc.- could frighten many businesses (particularly small business) to delay any expansions, hiring, or business investment. This could be a real challenge, especially if manufacturing doesn’t ramp back up after Phase 1 of the trade deal.

Somewhat concerned about a “no deal” Brexit where creditors, trade partners, and even some members of the British empire (Scotland) are left hanging out to dry. Hard to trade, lend, borrow, build, or invest when the very near future is that uncertain.

Oil prices need to trade in a range between being profitable for energy companies to operate and expand, and not being so high that they trigger inflation and/or hurt the consumers’ ability to spend.”

Lance A. Browning, RICP®, Founding Partner, SVP

Despite the progress in trade talks with China and low interest rates, many economists and financial experts don’t see the economy gaining much momentum in 2020, primarily because of weaker consumer spending habits as of late. Because of the economic uncertainties, there’s no better time than now to hedge against those uncertainties than by investing in precious metals like gold. For those US investors who are interested, have a look at our precious metals IRA reviews and the top 10 Gold IRA companies to learn more and understand your options in the space.

Sarah Bauder

Sarah Bauder is a financial writer with over a decade of experience at numerous online publications, writing about alternative investments, retirement, US politics, world economy and more.