The International Monetary Fund has released the World Economic Outlook 2019 that highlights the tapering economic activity in the latter half of 2018, after strong economic growth in 2017 and early 2018. This has been attributed to a confluence of factors that have affected major economies across the world. Some of these factors include:
- Decline of economic growth in China following a combination of regulatory changes to curb shadow banking and increase in trade tensions with the US
- Loss of more momentum than expected in European economies due to weakening of consumer and business confidence
- Disruption of car production in Germany due to the introduction of new emission standards
- Falling investments in Italy due to widening of sovereign spreads
- Softening of external demand, especially from Asia
- Natural disasters in Japan
Thus, trade tensions increasingly impacted business confidence in 2018, as financial market sentiments worsened, with a tightening of financial conditions for emerging markets. The advanced economies weighed on global demand in the latter part of 2018.
Due to these developments, the IMF has projected that the global growth will slow down from 3.6% in 2018 to 3.3% in 2019, before increasing up to 3.6% in 2020. Thus, the current forecast envisages that global growth will level off in the first half of 2019 and firm up again after that.
The projected pickup in late 2019 will be predicated on an ongoing buildup of policy stimulus in China, recent improvements in global financial market sentiment, waning of temporary drags on growth in the euro area and gradual stabilization of conditions in stressed emerging market economies, including Turkey and Argentina.
Improvements in the momentum for emerging markets and developing economies are projected to continue into 2020, despite the macroeconomic distress that certain economies are currently facing. On the other hand, the economic activity in advanced economies will slow down as the impact of US fiscal stimulus fades.
After 2020, IMF expects global growth to plateau at about 3.6%, sustained by increases in the relative sizes of economies, like those of India and China, projected to have a comparatively robust economic growth. Factors like tepid labour productivity growth and slowed expansion of labour force amidst an ageing population will possibly drag the economic growth of the advanced economies lower than the projected horizon.
Such an outlook is further complicated by a combination of structural bottlenecks, slower advanced economic growth, higher debt and tightened financial conditions, civil strife and subdued commodity prices in certain regions like Latin America, the Middle-East, Pakistan and North Africa, with medium-term prospects.
The balance of risks to the outlook remains on the downside, even if trade differences are resolved quickly and business confidence/investor sentiment strengthens. Further escalations in trade tensions and associated policy uncertainty could weaken the economic growth further. A sharp deterioration in market sentiment will imply portfolio allocations away from risk assets, wider spreads over safe haven securities and generally tighter financial conditions, especially for vulnerable economies.
The possible triggers for such situations are: a no-deal Brexit withdrawal of the UK, persistently weak economic data pointing persistently to a protracted global growth slowdown, prolonged fiscal uncertainty and elevated yields in Italy. Coupled with deep recessionary trends, these could have adverse spillovers across European economies. Other key risks contributing to a tightening of financial conditions and lowering of global potential output include rapid reassessment my markets of the monetary policy stance in the US or rising inequalities due to political discord or even climate change.
Certain policy priorities are crucial in order to prevent any impairments to economic activity, amidst waning global growth momentum and limited policy space to combat downturns. The macroeconomic and financial policies must aim to prevent further decelerations, especially in cases where the output could fall below the potential, thereby facilitating the withdrawal of a soft landing of policy support.
At the national level, inflation must remain on track and inflation expectations should be anchored. Fiscal policies must manage trade-offs between supporting demand and ensuring public debt remains sustainable. In cases wherein, fiscal consolidation and containment of monetary policies is required, the pace must be calibrated to secure stability and protection of vulnerable groups, while avoiding any damage to near-term growth.
In the scenario that current slowdown becomes more severe and protracted than expected, macroeconomic policies need to become more accommodative, particularly if output remains below the potential and financial stability is not at risk. Across all economies, actions must be taken to boost the potential growth in output, improve inclusivity and strengthen resilience. At the multilateral level, countries must accord priority to cooperatively resolving trade agreements, without resorting to distortionary barriers that could further destabilize a global economy that is already slowing down.
India Outbound
April 23, 2019
source https://indiaoutbound.org/an-overview-of-imfs-world-economic-outlook-april-2019/
No comments:
Post a Comment