The International Monetary Fund (IMF) has projected a lower global economic growth rate for 2019 at 3.3 percent, down from 3.6 percent recorded in 2018.
It added that the growth for 2018 was revised down by 0.1 percentage point relative to the October 2018 World Economic Outlook (WEO), reflecting weakness in the second half of the year, and the forecasts for 2019 and 2020 were now marked down by 0.4 percentage point and 0.1 percentage point, respectively.
The IMF noted that after strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies.
It said China’s growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States.
“The euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened.
“Elsewhere, natural disasters hurt activity in Japan. Trade tensions increasingly took a toll on business confidence and, so, financial market sentiment worsened, with financial conditions tightening for vulnerable emerging markets in the spring of 2018 and then in advanced economies later in the year, weighing on global demand.
“Conditions have eased in 2019 as the US Federal Reserve signaled a more accommodative monetary policy stance and markets became more optimistic about a US–China trade deal, but they remain slightly more restrictive than in the fall,” the report said.
The Fund noted that beyond 2020, global economic growth could climb over 3.6 percent over the medium term, sustained by the increase in the relative size of economies, such as those of China and India, which were projected to have robust growth by comparison to slower-growing advanced and emerging market economies.
The IMF added that risks were tilted to the downside, noting that global growth could surprise favorably if trade differences were resolved quickly so that business confidence rebounds and investor sentiment strengthens further, the balance of risks to the outlook remains on the downside.
“A further escalation of trade tensions and the associated increases in policy uncertainty could further weaken growth. The potential remains for sharp deterioration in market sentiment, which would imply portfolio reallocations away from risk assets, wider spreads over safe haven securities, and generally tighter financial conditions, especially for vulnerable economies.
“Possible triggers for such an episode include a no-deal Brexit withdrawal of the United Kingdom from the European Union; persistently weak economic data pointing to a protracted global growth slowdown; and prolonged fiscal uncertainty and elevated yields in Italy—particularly if coupled with a deeper recession—with possible adverse spillovers for other euro area economies.
“A rapid reassessment by markets of the monetary policy stance in the United States could also tighten global financial conditions. Over the medium term, climate change and political discord in the context of rising inequality are key risks that could lower global poten- tial output, with particularly severe implications for some vulnerable countries,” it added.
The Fund said policy priorities should be made to avoid policy misstep that could harm economic activities, adding, “Macroeconomic and financial policy should aim to prevent further deceleration where output could fall below potential and facilitate a soft landing where policy support needs to be withdrawn. At the national level, this requires monetary policy to ensure that inflation remains on track toward the central bank’s target.”
