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. The report covers the following aspects:
- Global prospects and policies: There have been decelerations in global economic expansionary trends in the latter half of 2018, post a broad-based upswing in cyclical economic growth that lasted for almost two years. Economic activity softened amidst an increase in trade tensions and tariff hikes between the US and China due to a tightening of financial conditions and higher policy uncertainty that plague many economies. Against this global backdrop, a confluence of country-specific and economic sector-specific factors have further reduced the global economic momentum. Global economic growth peaked and remained strong at almost 4% in 2017 but dropped to 3.8% in the first half of 2018 and fell to 3.2% in the latter part of 2018.
- Rise and macroeconomic effects of corporate market power: the report assesses the level of increase in and associated macroeconomic implications of corporate market power. A broad analysis of cross-country firm-level patterns highlights three takeaways:
- The price markups over marginal costs of firms up to 8% since 2000, indicate a moderate increase in market power across advanced economies but not emerging market economies
- The increase in market power, while fairly widespread across advanced economies and industries, has remained concentrated amongst a small fraction of the more dynamic, productive and innovative firms
- While the overall macroeconomic implications have remained modest so far, any further increase in the market power of the already-powerful firms will weaken investment, deter innovation, reduce labour income shares and make it tougher to stabilize output via monetary policies
- Potential threat to a driver of investment i.e. the price of capital goods: In the past three decades, the prices of capital goods like machinery and equipment have fallen drastically, in comparison to the prices of other goods in the advanced and emerging markets as well as developing economies. However, rising trade tensions, hampered pace of trade integration and sluggish productivity growth could threaten this potential driver of investment. In this context, the report documents key patterns in the prices of capital goods, its drivers as well as its impact on real investment rates.
- Drivers of bilateral trade and tariff spillovers: The increasing presence of large bilateral trade balances has raised concerns regarding asymmetric obstacles, which might distort the international trade system. The report examines the drivers of bilateral trade balances, while distinguishing between the roles of macroeconomic factors, the international division of labor and bilateral tariffs. It also examines how tariffs impact the organisation of production within andacross countries and consequently affect productivity, outputand employment.
In a nutshell, what the report is saying is that economic growth in 2019 will be weaker for about 70% of the global economy (in terms of value, not 70% of the countries), in relation to 2018. This has been a dramatic shift because one year ago many economies were accelerating. Thus, the governments and policy-makers must achieve a delicate balance in terms of taking appropriate actions vis-à-vis prevalent downside risks. This recognition that the global economy is going through a delicate change must be bolstered via multinational cooperation.
India Outbound
April 22, 2019
source https://indiaoutbound.org/scope-of-imfs-world-economic-outlook-april-2019/
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