G20 countries: Top 5 economic prospects
- The G20 – 19 nations plus the European Union accounts for four-fifths of global economic activity
- The 2024 Summit kicks off today (Monday 18 November)
- We look at the prospects for these economies and markets – and the implications for investors
Robert Farago, head of strategic asset allocation, Hargreaves Lansdown:
“The United Nations is made up of 193 member states. Yet it is the fate of the G20 – 19 nations plus the European Union – that drives the global economy. They account for around two-thirds of the world’s population and around four-fifths of global economic activity. All G20 economies are sensitive to global trends to differing degrees. The global backdrop is relatively slow economic growth, falling inflation, and high levels of government debt. The whole world will feel the effects of a significant hike in US tariffs, if they are implemented as set out in Donald Trump’s campaign speeches.
Still, these very different countries are exposed to a diverse range of risks. For investors, risk and return are closely linked. Investors’ portfolios can benefit by diversifying across these different drivers of returns.
Ahead of the 2024 annual G20 summit, we pick the top five economic prospects – and the implications for investors.
- US
The US is world’s largest economy, its growth has outpaced other advanced economies over the last two years and is expected to do so again in 2025. Its stock market is home to nine of the world’s top ten companies – many seen as the expected winners from the potential of AI. But the market is also exceptionally expensive, meaning that investors will need to see the potential of AI realised in above-average earnings growth over the coming years. The re-election of Donald Trump brings a new level of uncertainty. In particular, we wait to see whether talked-about tariff hikes are fully implemented.
- Japan
Japan tops the Economic Complexity index, which measures the number and complexity of export products. This is reflected in the number of world class companies listed on the stock market. The country offers diversification benefits to investors because it is at a different stage of its interest rate cycle. We expect gradually increasing interest rates while most developed countries are cutting theirs.
- India
India is the fastest growing economy in the G20 and we expect this growth to be sustained for the next decade. What’s more, growth is primarily driven by domestic demand, so the economy is less sensitive to the ups and downs of the global economy than China or the developed world. However, these strengths are reflected in high equity market valuations.
- China
The downturn in the residential property market continues to weigh on the country’s prospects. The government has announced various stimulus measures that should provide some boost to the economy but are not expected to solve the structural issues holding growth back. Still, poor sentiment and valuations towards the bottom end of the historical range mean that any positive news could support the market.
- European Union
The IMF forecast lacklustre growth of 1.2% for the Eurozone in 2025, albeit this is an improvement on the last two years. The region’s producers of export goods, such as cars, are more exposed to the growing competition from China, where the manufacturing industry is becoming more technologically advanced. The European Union’s fiscal framework limits the scope for government spending to boost growth. This makes us expect lower interest rates.
What about the UK?
How does the UK stack up against this eclectic mix? Subdued growth, falling inflation, high debt levels, attractive valuations and a lack of world-beating technology companies makes the UK stock market look to us more like their European peers than the US. But we see the economy as less vulnerable to the growing competition from China. And it may be seen as an island of political stability over the next five years.
