Fraternal Twins: United States and Europe

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The movie “Twins,” a hysterical comedy, featured stars Arnold Schwarzenegger and Danny DeVito. In explaining my 2020 Forecast I was trying to provide a picture of how I see the United States versus Europe and “Twins” popped into my head. From an economic perspective, the U.S. is in a virtuous cycle where everything seems to go its way. Today, China announced reducing tariffs, which is a win for the U.S. economy. Friday’s employment report is looking to be a blockbuster with January’s ADP private payroll increase of an astounding 291,000; initial claims plummeted back down to a near 50-year low; productivity ratcheted up to 1.8% YoY and ISM manufacturing rose back above 50, indicating expansion likely in part due to the surge in U.S. oil exports. On the other hand, Eurozone GDP growth slowed to 0.1% QoQ in 4Q19; France GDP unexpectedly contracted in the fourth quarter; Germany’s GDP, not out yet, but likely stagnated; and Italy’s 4Q19 GDP contracted -0.3% QoQ, for a few depressing metrics. Much of the contrast between the two economies stems from policy decisions. In the U.S., the pro-growth and pro-business fiscal policies include a 40% cut in corporate income taxes and generous repatriation of overseas profits. I said in 2017 on CNBC that it is likely that Europe will respond or become uncompetitive in the world economy. Europe has not responded with similar pro-growth policies. For now, the U.S. economy appears robust enough to offset Europe’s weakness – but for how long? Please see the Voya Global Perspectives 2020 Forecast.

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