IMF Downgrades Global Growth Forecast to 3.3 per cent for 2020

In addition to lowering the projection for 2020, the organisation has also made a downward revision to 2019 and 2021 forecasts to 2.9 per cent (0.1 percentage point down) and 3.4 per cent (0.2 percentage point down), respectively.

As per the IMF, the downward revision largely suggests negative shocks to economic activity in some of the emerging/developing market economies, particularly India, which led to a re-evaluation of growth projections over the following two years.

The organisation notified that a lion’s share of the downward revisions was underpinned by a more subdued growth projection for India.

IMF’s Chief Economist Gita Gopinath is also of the opinion that India’s much lower-than-anticipated GDP figures turned out to be the largest drag on the two years’ global growth forecasts.

To recall, in its October WEO, the IMF downgraded the growth forecast of Australia from 2.1 per cent and 2.8 per cent to 1.7 per cent and 2.3 per cent for 2019 and 2020, respectively. The organisation also called for fiscal stimulus from the federal government to bolster productivity and support economic growth.

The IMF’s forecast for Australia was more pessimistic than the RBA’s projections of 2.5 per cent and 2.75 per cent growth for 2019 and 2020, respectively.

IMF Foresees Sluggish Global Growth in 2020

IMF’s global growth trajectory is based on a group of some stressed and underperforming emerging market and developing economies, including India, Mexico, Turkey, Russia and Brazil, and relatively healthy emerging market economies that have maintained their strong performance.

The organisation expects the EMDE (emerging market and developing economy) group to observe a growth of 4.4 per cent in 2020 and 4.6 per cent in the following year (0.2 percentage point down each from October WEO). The growth in this group was supported by the following economies:

• Emerging and Developing Asia: 5.6 per cent in 2019, 5.8 per cent in 2020 and 5.9 per cent in 2021.
• Emerging and Developing Europe: 1.8 per cent in 2019 and 2.5 per cent in 2020–21.
• Latin America: 0.1 per cent in 2019, 1.6 per cent in 2020 and 2.3 per cent in 2021.
• The Middle East and Central Asia: 2.8 per cent in 2020 and 3.2 per cent in 2021.
• Sub-Saharan Africa: 3.3 per cent in 2019 and 3.5 per cent in 2020–21.

In addition to revising down the projections for emerging market economies, the organisation has also downgraded the growth estimates of the advanced economies to 1.6 per cent in 2020–21, 0.1 percentage point down from the October’s WEO.

The lower projections for the advanced economies were provided due to the downward revisions for the United Kingdom, the United States and euro area and downgrades to other developed economies in Asia, particularly Hong Kong SAR in the wake of protests.

The growth forecasts provided for the advanced economies are as follows:

• The United States: 2.3 per cent in 2019, 2 per cent in 2020 and 1.7 per cent in 2021.
• Euro Area: 1.2 per cent in 2019, 1.3 per cent in 2020 and 1.4 per cent in 2021.
• The United Kingdom: 1.4 per cent in 2020 and 1.5 per cent in 2021.
• Japan: 1 per cent in 2019 and 0.7 per cent in 2020.

Source: IMF

Global Growth May be Bottoming Out, Says IMF

IMF mentioned that there were some indications toward the year-end that signalled that the global growth may be bottoming out. The indications including, intermittent positive news on US-China trade negotiations, a comprehensive shift towards accommodative monetary policy and reduced fears of a no-deal Brexit boosted market sentiments.

IMF noted that several countries decided to ease monetary policy in the second half of 2019, which has supported the global growth estimate, without which the projection would have been 0.5 percentage point lower in each year. The organisation expects the lagged effects from the considerable support provided by the monetary policy easing in early 2019, to help global activity recover in early 2020.

Moreover, supportive financial conditions across the globe reinforced market sentiment towards the end of 2019. Some positive developments that supported investors’ risk appetite are as follows:

• Continued advancement in equities in the large advanced economies over the fall.
• Strengthening of portfolio movements to emerging market economies.
• A rise in core sovereign bond yields from their September low level.
• Appreciation in British pound on perceptions of diminished risks of a no-deal Brexit.

Downside Risks Remain to the Global Outlook

As per the international organisation, though the downside risks remain to the global outlook, they are less skewed than those observed in the October WEO. The IMF mentioned the following downside risks that can hinder the global growth:

• The geopolitical tensions escalating between Iran and the US, which can hurt sentiment, disrupt global oil supply, and weaken already uncertain business investment.
• The intensified tariff barriers between the US and China, which have shaken business sentiment and compounded ongoing structural and cyclical slowdowns in many economies over the last year.
• Portfolio reallocations toward safe assets, rapid shifts in financial sentiment and rising rollover risks for vulnerable sovereign and corporate borrowers, that can occur due to a materialization of any of the above two risks.
• Weather-related calamities like heatwaves, droughts, tropical storms, floods and wildfires, which have levied serious livelihood loss and humanitarian costs across several regions in recent years.

It is imperative to note that bushfires in Australia have taken a deadly turn in the last few months, killing numerous animals and about 28 humans.

Amidst the existing international scenario, the IMF believes that firmer multilateral cooperation and federal-level policies are required that will offer timely support, bolstering a continued recovery to the interest of all.

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