Photograph — Financial quest

Although the global economy is recovering from a slowdown last year in which it recorded the weakest growth since the financial crisis, the outlook remains sluggish and there are no clear signs of a turning point moving into 2020, the International Monetary Fund (IMF) has said.

In the latest quarterly update to its World Economic Outlook released on Monday, the Fund cut its global growth estimate for 2020 to 3.3 percent, 0.1 percent lower than the previous forecast in October. But the new numbers show a modest increase in growth compared to 2019 when output stood at 2.9 percent. For 2021, the Fund projects a growth rate of 3.4 percent, 0.2 percentage point lower than the previous projection.

“After a synchronized slowdown in 2019, we expect a moderate pickup in global growth this year and next,” IMF Managing Director Kristalina Georgieva said while presenting the revised numbers in Davos, a day before the World Economic Forum (WEF) 2020 kicked off.

Georgieva meanwhile warned that the global economic growth in 2020 is still vulnerable. “We are all adjusting to live with the new normal of higher uncertainty,” the IMF chief said. “We are already seeing some tentative signs of stabilization but we have not reached a turning point yet.”

Source: International Monetary Fund.

The reduced optimism about global growth is attributed to a series of factors. A projected slowdown in India is weighing heavily on global growth, and according to the IMF, the Indian slowdown “accounts for the lion’s share of the downward revisions.” The Asian nation is currently struggling with declining consumption and investments, budget deficits and delays in making structural reforms.

The outlook is also driven by a truce between the United States and China after a nearly two-year trade war as well as the aggressive monetary policy easing by major central banks across the world in 2019 in reaction global trade collapse. According to the IMF, the projected figures for global growth would be lower without the stimulus provided by monetary policymakers.

IMF then said that its forecasts depend on “avoiding further escalation” in an ongoing “unresolved” economic dispute between Washington and Beijing, both of which signed a phase one trade deal last week. Though the agreement reduces trade frictions between the world’s two largest economies, it fails to address several major challenges and leaves in place 25 percent tariffs on $250 billion worth of Chinese industrial goods and components used by U.S. manufacturers, and China’s retaliatory tariffs on over $100 billion in American goods.

Much of the optimism for the global economy is based on the initial trade deal remaining intact and not breaking into new escalations. Thus the IMF is cautious about the state of the global economy going forward, particularly about further trade tensions, which could “undermine the nascent bottoming out of global manufacturing and trade, leading global growth to fall short of the baseline,” the report says.

Source: International Monetary Fund.

Some of the other downside risks to global growth as detailed by the Fund are rising geopolitical tensions, notably between the U.S. and Iran, which could disrupt global oil supply, hurt sentiment, and weaken already tentative business investment as well as climate change-driven weather-related disasters such as tropical storms, floods, heatwaves, droughts, and wildfires which have imposed severe humanitarian costs and livelihood loss across multiple regions in recent years.

“While there are signs of stabilization, the global outlook remains sluggish and there are no clear signs of a turning point. There is simply no room for complacency, and the world needs stronger multilateral cooperation and national-level policies to support a sustained recovery that benefits all,” Gita Gopinath, the IMF’s chief economist, said in a statement.

The IMF expects that both the Chinese and American economies will slow in 2020. The U.S. is projected to grow 2 percent in 2020, down from 2.3 percent in 2019. China’s rate will slip to 6 percent in 2020 from 6.1 percent last year. On the other hand, notable improvements in growth are projected for several major emerging markets – Brazil, India, Mexico, and Russia are expected to see growth accelerate in 2020, by about a full percentage point in each country.

In sub-Saharan Africa, growth is expected to strengthen to 3.5 percent in 2020–21 (from 3.3 percent in 2019). The projection is 0.1 percentage point lower than in the October WEO for 2020 and 0.2 percentage point weaker for 2021, reflecting downward revisions for South Africa and Ethiopia. While growth projection for Nigeria remains the same as the October forecast.

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