By Deepta Bolaky
The World Economic Outlook has further shifted to the downside. The growth estimates for 2019 and 2020 were downgraded in October 2018 mainly due to trade tensions. The recent further downward revisions were the result of the weakening momentum in key industrialised economies.
The table below depicts the “Weakening Global Expansion”:
Eurozone Area: The most significant revisions came from Europe- mainly Germany and Italy.
In addition to the above, the rise in populism in the Eurozone area, Brexit and cross-border spillovers are some other Europe-specific factors that are weighing on economic activity.
United States: Washington is in gridlock, and the fiscal sugar rush died down. The US expansion continues, but growth momentum will soften. In comparison with the Eurozone area, the US’s growth will remain high. The prolonged US government shutdown is also posing risks to economic activity.
Japan and the United Kingdom: Despite natural disasters in Japan and Brexit in the UK, IMF has upgraded growth forecasts for these two economies. Japan’s fiscal support and mitigating measures to the tax hike enabled the IMF to revise the estimates to the upside. Given that the uncertainty around Brexit is eliminated and a deal has been reached, the UK economy is expected to move up because data has shown that it is not as sluggish as the Eurozone area.
China: Despite the recent stimulus program which will tackle some of the impacts of trade frictions, China’s economy is forecasted to slow towards the lower range of 6%. A combination of financial regulatory tightening, trade dispute and rout in commodity prices have caused a deeper slowdown than initially forecasted. The warnings from IMF is a reminder that China’s slowdown will have a global impact.
Saudi Arabia: Tumbling oil prices have forced IMF to also lower growth forecasts for Saudi Arabia.
India and Brazil: “India’s economy is poised to pick up in 2019, benefiting from lower oil prices and a slower pace of monetary tightening than previously expected, as inflation pressures ease.” The main factor behind the revisions is the declining commodity prices, which will eventually aid policy easing. Brazil’s recovery is expected to continue, which allowed IMF to upgrade its forecasts.
These moderate downward revisions to forecasts which were already revised down in October 2018 are warnings that investors will be keen to keep an eye on. IMF stretched the importance of recognising the growing risks, even though we are not anticipating a significant downturn at this stage.
This may be the reason why the World Economic Outlook is placing more emphasis on the Multilateral Cooperation, and call for policies as well to reverse the current headwinds and prepare for the forecasted downturn.
As of writing, the concerns about the global economic outlook have resurfaced with IMF warnings and its impact on risk sentiment can be seen in the Asian markets today.
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