World Bank IMF and Dev Agencies | |
World Bank IMF and Dev Agencies | |
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Monday, January 20, 2020 / 02:40
PM / by Gita Gopinath, IMFBlog / Header Image Credit: IMF
In the October World
Economic Outlook, we described the global economy as in a synchronized
slowdown, with escalating downside risks that could further derail growth.
Since then, some risks have partially receded with the announcement of a
US-China Phase.
I trade deal and lower
likelihood of a no-deal Brexit. Monetary policy has continued to support
growth and buoyant financial conditions. With these developments, there are now
tentative signs that global growth may be stabilizing, though at subdued
levels.
In this update to the World Economic Outlook, 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. The slight downward revision of 0.1 percent for 2019 and
2020, and 0.2 percent for 2021, is owed largely to downward revisions for
India. The projected recovery for global growth remains uncertain. It continues
to rely on recoveries in stressed and under-performing emerging market
economies, as growth in advanced economies stabilizes at close to current
levels.
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.
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.
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.
For 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. China's growth has been revised upward by 0.2 percent to 6
percent for 2020, reflecting the trade deal with the United States.
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 under-performing emerging and developing economies such as Brazil, India, and Mexico.
Risks retreating but still
prominent
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.
Policy priorities
Monetary policy should
remain accommodative where inflation is still muted. With interest rates
expected to stay low for long, macroprudential tools should be proactively used
to prevent the build-up of financial risks.
Given historically low
interest rates alongside weak productivity growth, countries with fiscal space
should invest in human capital and climate-friendly infrastructure to raise
potential output. Economies with unsustainable debt levels will need to consolidate,
including through effective revenue mobilization. To ensure a timely fiscal
response if growth were to slow sharply, countries should prepare contingent
measures in advance and enhance automatic stabilizers. A coordinated fiscal
response may be needed to improve the effectiveness of individual measures.
Across all economies, a key imperative is to undertake structural reforms,
enhance inclusiveness, and ensure that safety nets protect the vulnerable.
Countries need to cooperate
on multiple fronts to lift growth and spread prosperity. They need to reverse
protectionist trade barriers and resolve the impasse over the World Trade
Organization's appellate court. They must adopt strategies to limit the rise in
global temperatures and the severe consequences of weather-related natural
disasters. A new international taxation regime is needed to adapt to the
growing digital economy and to curtail tax avoidance and evasion, while
ensuring that all countries receive their fair share of tax revenues.
To conclude, 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.
Download Here - World Economic Outlook, January 2020
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