The International Monetary Fund (IMF) updated its World Economic Outlook (WEO) yesterday. The money quotes follow:
Global Growth
- There are now tentative signs that global growth may be stabilizing, though at subdued levels.
- Some risks have partially receded with the announcement of a US-China Phase I trade deal and a lower likelihood of a no-deal Brexit
- Monetary policy has continued to support growth and buoyant financial conditions
- We project global growth to increase modestly from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021
- Projected recovery for global growth remains uncertain
- It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels
- The pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for underperforming emerging and developing economies such as Brazil, India, and Mexico
Manufacturing
- There are preliminary signs that the decline in manufacturing and trade may be bottoming out
- This is partly from an improvement in the auto sector as disruptions from new emission standards start to fade. A US-China Phase I deal, if durable, is expected to reduce the cumulative negative impact of trade tensions on global GDP by end 2020—from 0.8 percent to 0.5 percent
Services
- The service sector remains in expansionary territory, with resilient consumer spending supported by sustained wage growth
- The almost synchronized monetary easing across major economies has supported demand and contributed an estimated 0.5 percentage point to global growth in both 2019 and 2020
Advanced Economies
- In advanced economies, growth is projected to slow slightly from 1.7 percent in 2019 to 1.6 percent in 2020 and 2021
- Export dependent economies like Germany should benefit from improvements in external demand, while US growth is forecast to slow as fiscal stimulus fades
China And Emerging Markets
- China’s growth has been revised upward by 0.2 percent to 6 percent for 2020, reflecting the trade deal with the United States
- For the emerging market and developing economies, we forecast a pickup in growth from 3.7 percent in 2019 to 4.4 percent in 2020 and 4.6 percent in 2021, a downward revision of 0.2 percent for all years
- The biggest contributor to the revision is India, where growth slowed sharply owing to stress in the nonbank financial sector and weak rural income growth
Upshot
- Overall, the risks to the global economy remain on the downside, despite positive news on trade and diminishing concerns of a no-deal Brexit
- New trade tensions could emerge between the United States and the European Union, and US-China trade tensions could return
- Such events alongside rising geopolitical risks and intensifying social unrest could reverse easy financing conditions, expose financial vulnerabilities, and severely disrupt growth
- Importantly, even if downside risks appear to be somewhat less salient than in 2019, policy space to respond to them is also more limited. It is therefore essential that policymakers do no harm and further reduce policy uncertainty, both domestic and international. This will help to revive investment, which remains weak
