The U.S. rural economy will continue to face headwinds in 2020 and is expected to underperform relative to the economy of urban America. Since 2014, GDP growth in rural counties has averaged almost 1% less than in urban counties. That trend is likely to continue without a significant upswing in agricultural commodity prices, energy exploration, rural manufacturing and other industries upon which rural economic growth depend.

Despite that bearish prognosis there is room for optimism, according to a comprehensive 2020 outlook report from CoBank’s Knowledge Exchange division. The U.S. farm economy has demonstrated its resiliency in the face of trade wars, extreme weather and other disruptive events. While the downside impact of trade disputes and tariffs will remain severe for many, some agriculture sectors will see stronger exports and higher prices. Rising animal protein and dairy exports will be a bright spot for producers in 2020.

“Most current signals indicate the overall domestic economy is on firm footing, thanks almost exclusively to the consumer,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division. “However, without a meaningful U.S.-China trade deal, the U.S. agricultural economy will continue to struggle with uncertainty in 2020.”

The CoBank 2020 outlook report examines 10 key factors that will shape agriculture and market sectors that serve and impact rural communities throughout the U.S.

Global Economy: Less Trade, Slower Growth
After a year of trade tensions, declining GDP and the slowest global economic growth since the depths of the financial crisis, the world’s leading economies hope to turn the page in 2020. The prognosis, however, offers little to support such optimism. Consumer strength the world over has prevented further slowing in the global economy.

The direction and severity of the U.S.-China trade dispute will continue to have the most significant influence on the world economy in 2020. A leveling off of trade tensions would allow global economic growth to bottom out in early 2020 before showing signs of life later in the year. However, the vulnerable state of the global economy makes it susceptible to contraction if trade conditions worsen.

U.S. Economy: Expansion for Those Left Behind
The U.S. economy will enter 2020 decisively split-powered by a resilient and confident consumer, but hamstrung by a risk-averse business sector that has stopped investing. Now that stimulus effects from the 2017 tax reform and the 2018 spending bill have faded, the economic expansion will show its age, losing steam in the coming year. There is evidence that since 2017 more people, including those in rural communities, have broadly shared the benefits of economic growth, despite the continual rise in wealth inequality.

Monetary Policy: Sustain and Prepare
All eyes will be on the central banks as the world inches closer to the end of the longest period of economic growth in history. Japan and Europe are still stimulating their economies with negative interest rates and quantitative easing.

After three rate cuts in 2019, the U.S. Federal Reserve is holding a more conservative stance with its target rate near 1.5%. China has the most room to maneuver with its short-term rate just under 3%. All these accommodative stances are made possible because inflation remains inexplicably low despite tightening labor markets. Federal Reserve Chair Powell’s role in 2020 is to keep the late stage expansion going while simultaneously preparing for the recession that will arrive sooner or later.

U.S. Government – Policy and Trade Up in the Air
Agricultural policy at the federal level has been wrought with uncertainty and volatility. The trade environment for 2020 remains hazy as well. Beyond a possible U.S.-China phase one deal, more progress with China will be a challenge.

As a result, it is difficult to see trade as a bright spot in 2020. The atmosphere in Washington today has given way to progress on agricultural labor legislation and the USMCA. But a protracted partisan fight over impeachment is on tap in the Senate. This rancor makes it difficult to advance legislation that helps agriculture, which would give either side a win for the hotly contested 2020 election. Market Facilitation Program payments to farmers helped make up for persistently low commodity prices in the last year.

To view the complete report, click here.

Source: AgriMarketing