2019 felt like a rollercoaster ride. 2020 is almost certain to be even wilder. Our part of the world has never started a year with interest rates so low and with so much uncertainty around.
Doubt is enveloping house prices, wages, and global markets. It's hard to see how reserve banks could possibly get relaxed enough about the future to raise interest rates.
• A recession will come, but how bad will it be?
• Jared Bernstein: Just how likely is a recession?
• Experts warn the next recession will be 'worse than the Great Depression' and predict it will hit US within two years
• World sharemarkets shudder, but it's too early to predict a recession
So what will happen in the new year? Here are the big issues you should be thinking about.
In 2019, many global recession warning signs started flashing red.
Yield curves briefly inverted in the US, which has been a mostly reliable precursor to recession in the last 40 years, as the next graph shows.
When the blue line dips below zero, a recession usually follows. But was the recent dip big enough?
Google trends data also shows something interesting: a big surge in people searching for information about recessions. This indicator may be less technical than the yield curve, and it has less history to draw on, but it certainly peaked before the GFC, so its accuracy should not be sneezed at.
Closer to home, the biggest indicator of a possible recession may be the Reserve Bank in Australia is talking about quantitative easing. Their forecasts remain mostly positive, but quantitative easing is a tool for desperate times, and if it's on the table for use in 2020, we have to ask why.
Interest rates are already at record lows and seemingly having little effect. If a recession does come in 2020, it's frightening to contemplate how little reserve banks might be able to do to reverse it.
JOBS AND EARNINGS
2019 was not a terrible year for jobs, but it was not impressive. Overall unemployment dropped in New Zealand, but under-employment remains a big problem on both sides of the ditch.
Rising underemployment is usually a bad sign for wages. The backbone of the economy is our paycheques. Workers mostly spend what they earn, and our earnings have not been growing well. Wages growth is barely above inflation. It is fair to ask what will happen in 2020.
One useful sign for the future is the ANZ job ads series. It counts up job ads to try to predict the future of the labour market. But it has bad news about next year. Job ads have been falling, as the next graph shows.
This suggests fewer people will be starting new jobs soon. This is bad news because to get a raise we need a tighter labour market, i.e. lots of people getting hired and not so many getting fired. Instead, the reverse seems to be happening.
More and more, Australia and New Zealand's economies depend on global markets. We can be lifted up by policies made in Beijing, but we can also be brought down by mistakes made on Wall Street and Silicon Valley. And there have been plenty of the latter in history.
2019 was the year of the WeWork saga. A hot American real estate start-up funded with way too much venture capital money, it was going to float on the stock market for billions of dollars. Instead it suddenly stumbled and fell. The float was cancelled. The CEO was sacked. A whole lot of dodgy dealing was exposed. The company is now slashing staff and trying to avoid bankruptcy.
WeWork points to a sickness in the American start-up bubble. In 2019, WeWork's problems looked isolated, but are they? In 2007, the pension funds that were having problems with subprime loans looked isolated too. It was only by 2008 we realised they were a symptom of a big problem that led the whole word into the global financial crisis.
A lot of money has chased the start-up bubble, and if start-up firms turn out to have been a bad investment, a lot of money is going to be lost. How many WeWorks are out there? How many companies pretend to be winners but are actually hollow inside? Is Uber one? Slack? Spotify? Could they be revealed in 2020 and harm the global economy in the process?
And all this is without mentioning Donald Trump, Brexit, impeachment, the trade war and the US election. 2020 is going to be insanely busy. Finding out what happens to global markets is just one of the many reasons 2020 is going to be a hell of a ride.