NCM2020 (2) - Significant Downtrend Recorded in Global Growth; Major Economies Negatively Affected

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Wednesday, January 22, 2020 / 06:00 AM / By Proshare Research / Header Image Credit: EcoGraphics

 

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Global Macroeconomic Review and Outlook

There has been a significant downtrend in global growth. Major economies such as the United States of America (USA), China, Japan, Germany etc. have been negatively affected.  Emerging markets and developing economies such as Brazil, India, China, Mexico and Russia have been a part of this crisis.

 

The slowdown in global economic growth is attributable to the following:

  • A trade dispute between the USA and China resulting in a cut in the size of both bilateral and international trade accompanied by weakening investor confidence.
  • A slowdown in demand in China, driven by regulatory efforts to rein in debt but made worse by the macroeconomic consequences of increased global trade tensions.
  • A huge slump in the automobile industry, which has negatively affected car production in the USA and Europe.
  • A slowdown in Chinese imports and export growth.
  • Investment hold-back fired by Brexit-related uncertainty.

 

Advanced Economies

  • Most advanced economies have adopted expansionary monetary policy to increase economic growth. The USA Federal Reserve cut the Federal Funds rate in July and September 2019, the European Central bank reduced its deposit rate and announced a resumption of quantitative easing.  A fall in foreign direct investment (FDI) in most advanced economies have led to a decrease in their financial flows.

 

Emerging and Developing Economies

  • Taking a cue from the advanced economies, central banks in some emerging markets and developing economies have cut policy rates to boost productivity and growth i.e. Mexico, Philippines and Brazil cut their interest rate to 7.25%, 4.0% and 5.5% respectively. Emerging market economies have witnessed varying degrees of capital flows attributable to differences in economic and political fundamentals of the various countries.

 

Growth Forecast for Advanced Economies

IMF projects a growth rate of +1.7% for advanced economies in 2019 and 2020. But beyond 2020, the Bank projects growth in these economies to stabilize at about +1.6%.


  • The U.S economy witnessed a growth in its employment and consumption in the first half of 2019 despite slow growth in total investment. The IMF projects that the growth rate in the U.S will be +2.4% in 2019 and will moderate to +2.1% in 2o20. Its projections are based on an assumed shift in the fiscal stance from expansionary in 2019 to broadly neutral in 2020.


  • In the Euro area, a fall in foreign demand and a reduction in inventories attributable to weak industrial production has dampened the growth prospects of the region. IMF projects growth to be +1.2% in 2019 and +1.4% in 2020 as activities are expected to pick up modestly in 2020, external demand is projected to gain some momentum, and temporary factors (including new emission standards that hit German car production) continues to fade. France, Germany, Spain and Italy are projected to experience a further decline in their growth level as a result of weaker external demand, smaller fiscal impulse and reduction in private consumption.


  • According to the IMF, growth in the U.K is projected to expand to +1.2% in 2019 and +1.4% in 2020. The U.K economy has been negatively affected by the slowdown in growth rate and the ongoing Brexit uncertainty. The reality of Britain leaving the E.U with a deal or without a deal is still unknown.

 

  • Japan has been able to cushion the negative effect of the global slowdown in growth and trade tensions with an increase in private consumption and public spending. The IMF projects the Japanese economy to grow by +0.9% in 2019 and +0.5% in 2020.

Real GDP Growth Rate (%) 2017-2020

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Emerging Market and Developing Economies

Emerging and Developing Asia

  • It remains the fastest-growing region in the world; therefore, it is the main growth engine of the world economy.
  • The Chinese economy has witnessed structural slowdown caused by increases in tariffs and weakening external demand
  • The Chinese reformed their interest rate policy, targeted towards greater effectiveness in monetary policy and low finance costs to the real economy.
  • The IMF projects a growth rate of +6.1% in 2019 and +5.8% in 2020.
  • The Indian economy is projected to grow at +6.1% in 2019, picking up to +7.0% in 2020.
  • Growth is expected to be supported by the lagged effects of monetary policy easing, a reduction in corporate income tax rates etc.

 

Latin America

  • In Latin America, there has been a slowdown in economic activities in most of their economies.
  • Brazil witnessed disruption in their mining supply while the Mexican economy was negatively affected by the slowdown in global growth, trade war and trade tensions, which had adverse effects on private consumption, business confidence, borrowing cost and investment.
  • The Venezuelan economy is troubled by humanitarian and economic crises. IMF projects growth in the region to be +0.2% in 2019 and +1.8% in 2020.

 

The Middle East and Central Asia

  • It is expected to grow at +0.9% in 2019 and +2.9% in 2020 according to IMF forecast.
  • The non-oil sector of the region is expected to strengthen further in 2019 and 2020. Oil GDP in Saudi Arabia is projected to decline against the backdrop of the extension of the OPEC agreement and a generally weak global oil market.
  • Growth is projected to pick up in 2020 as oil GDP stabilizes, and solid momentum in the non-oil sector continues. Civil strife in some other economies, including Libya, Syria and Yemen, weigh on the region's outlook.

 

Sub-Saharan Africa

  • It is projected to grow at +3.2% in 2019 and +3.6% in 2020, according to IMF forecast.
  • Volatility in the oil prices earlier in the year have supported the subdued outlook for Nigeria and some other oil-exporting countries in the region, but Angola's economy-because of a decline in oil production is expected to contract this year and recover only mildly next year.
  • Labour strikes, energy supply issues in mining and weak agricultural production have negatively affected the South African economy. Nigeria, South Africa and Angola are projected to continue with their poor performance, other economies such as the Ethiopian economy, which is more diversified, is experiencing faster growth.
  • About 20 economies in the region, accounting for about 45% of the Sub-Saharan African population and 34% of the region's GDP (1% of global GDP), are estimated to be growing faster than +5% this year.

 

Emerging And Developing Europe

 

  • The slow growth in emerging and developing Europe in 2019 reflects a slowdown in Russia and flat activity in Turkey.
  • According to the IMF, the region is expected to grow at +1.8% in 2019 and +2.5% in 2020. In Russia, growth has been weaker this year, but it is projected to recover next year, contributing to the upward projection for the region for next year.
  • Resilient domestic demand, rising wages have led to solid growth experienced by several countries in Central and Eastern Europe, including Hungary and Turkey.

 

Real GDP Growth Rate (%) 2017-2020

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