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IMF lowers global growth forecast for 2019

09 Apr 2019, 19:46 ( 3 Months ago)

DF-Xinhua Report
IMF chief economist Gita Gopinath. Photo Source IMF.

The International Monetary Fund (IMF) on Tuesday lowered its global growth forecast for 2019 to 3.3 percent in the newly-released World Economic Outlook (WEO) report, down 0.2 percentage point from its estimation in January.  

   The IMF said the world economy faces downside risks brought by potential uncertainties in the ongoing global trade tensions, as well as other country- and sector-specific factors.

   The 3.3 percent projection for 2019 is 0.3 percentage point below the 2018 figure, followed by an expected return to 3.6 percent in 2020.

   Growth rate projections for advanced economies are 1.8 percent for 2019 and 1.7 percent for 2020, both below the 2 percent-plus rates recorded in the previous two years, according to the WEO report.

   For emerging market and developing economies, the IMF predicted a growth rate down to 4.4 percent for 2019, 0.1 percentage point lower than in 2018, and that expansion will rebound to a rate of 4.8 percent in 2020, leveling the 2017 outcome.

   IMF chief economist Gita Gopinath wrote in a blog post that the projected slowdown in 2019 is "broad-based."

   "It reflects negative revisions for several major economies including the euro area, Latin America, the United States, the United Kingdom, Canada, and Australia," Gopinath said.

   The loss of growth momentum, said Gopinath, dates back to the second half of 2018, when the world economy was hit by "a significantly weakened global expansion." The WEO report said global growth remained strong at 3.8 percent in the first half of 2018, but dropped to 3.2 percent in the second half.

   Gopinath blamed the situation largely on trade tensions between the United States and its trading partners, macroeconomic stress in Argentina and Turkey, disruptions to the auto sector in Germany, and financial tightening alongside normalization of monetary policy in the larger advanced economies.

   With respect to the perceived recovery in 2020, the economist said it is "precarious," adding that it is based on the assumption that "a rebound occurs in emerging market and developing economies."

   Gopinath said the uptick "is supported by significant monetary policy accommodation by major economies, made possible by the absence of inflationary pressures despite growing at near potential."

   She also cited a shift toward "a more accommodative stance" in central bank policies of the United States, the European Union (EU), Japan and Britain, plus China ramping up its fiscal and monetary stimulus, as well as a positive outlook for a U.S.-China agreement to resolve their trade disputes.

   These policy responses, Gopinath said, have helped reverse the tightening financial conditions to varying degrees across countries, featuring ongoing trends in the emerging markets such as a resumption of portfolio flows, a decline in sovereign borrowing costs, and a strengthening of their currencies relative to the U.S. dollar.

   The WEO report expected growth rates in the euro zone to be 1.3 percent in 2019 and 1.5 percent in 2020, both lower than the 2018 and 2017 results.

   EU-wide, downside risks include a protracted period of elevated yields in Italy, the rising possibility of Britain leaving the EU without a deal, as well as "European Parliamentary election outcomes that delay or reverse progress on strengthening the euro area architecture," according to the report.

   A no-deal Brexit, the report said, which "severely disrupts supply chains and raises trade costs could potentially have large and long-lasting negative impacts" on the economic well-being of Britain and the EU.

   With regard to the United States, it projected that the economy will grow by 2.3 percent in 2019, and expand at a lower rate of 1.9 percent in 2020.

   The report said the market-implied path of expected policy rates remains below the U.S. Federal Reserve's projections, "raising the possibility of a market reassessment of the expected policy path if U.S. economic data remain strong."

   "This could result in higher U.S. interest rates, renewed dollar appreciation, and tighter financial conditions for emerging market and developing economies with balance sheet vulnerabilities," the report said.

   For China, the growth rates are forecast to be 6.3 percent in 2019 and 6.1 percent in 2020.

   Beyond 2020, the report predicted that global growth will "plateau at about 3.6 percent over the medium term."

   Gopinath said the post-2020 growth stabilization is "bolstered mainly by growth in China and India and their increasing weights in world income."

   Growth in emerging market and developing economies will stabilize at 5 percent, with emerging economies in Asia continuing to grow faster than other regions, she added.

   To prevent the downside risks from materializing, Gopinath urged the building of more inclusive economies, adding that "costly policy mistakes" should be avoided.

   "Policymakers need to work cooperatively to help ensure that policy uncertainty doesn't weaken investment," she said. "Across all economies, the imperative is to take actions that boost potential output, improve inclusiveness, and strengthen resilience."