The revision for 2019 reflects negative surprises for growth in emerging market and developing economies that offset positive surprises in some advanced economies / A.M. Costa Rica wire services photo.
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Sluggish global growth calls for supportive policies, said specialist
By the A.M. Costa Rica wire services
The July update of the World Economic Outlook revised downward the projection for global growth to 3.2 percent in 2019 and 3.5 percent in 2020.
While this is a modest revision of 0.1 percentage points for both years relative to projections in April, it comes on top of previous significant downward revisions. The revision for 2019 reflects negative surprises for growth in emerging market and developing economies that offset positive surprises in some advanced economies, said the International Monetary Fund on its report.
Growth is projected to improve between 2019 and 2020. However, close to 70 percent of the increase relies on an improvement in the growth performance in stressed emerging market and developing economies and is therefore subject to high uncertainty.
Global growth is sluggish and precarious, but it does not have to be this way because some of this is self-inflicted, the fund said. Dynamism in the global economy is being weighed down by prolonged policy uncertainty as trade tensions remain heightened despite the recent U.S.-China trade truce, technology tensions have erupted threatening global technology supply chains, and the prospects of a no-deal Brexit have increased.
The negative consequences of policy uncertainty are visible in the diverging trends between the manufacturing and services sector, and the significant weakness in global trade, said the fund. The manufacturing purchasing manager indexes continue to decline alongside worsening business sentiment as businesses hold off on investment in the face of high uncertainty.
Global trade growth, which moves closely with investment, has slowed significantly to 0.5 percent (year-on-year) in the first quarter of 2019, which is its slowest pace since 2012. On the other hand, the services sector is holding up, and consumer sentiment is strong, as unemployment rates touch record lows and wage incomes rise in several countries, according to the fund.
Among advanced economies—the United States, Japan, the United Kingdom, and the euro area—grew faster than expected in the first quarter of 2019. However, some of the factors behind this—such as stronger inventory build-ups—are transitory and the growth momentum going forward is expected to be weaker, especially for countries reliant on external demand. Owing to first quarter upward revisions, especially for the United States, projection for advanced economies are up slightly, by 0.1 percentage points, to 1.9 percent for 2019. Going forward, growth is projected to slow to 1.7 percent, as the effects of fiscal stimulus taper off in the United States and weak productivity growth and aging demographics dampen long-run prospects for advanced economies, said the fund.
In emerging market and developing economies, growth is being revised down by 0.3 percentage points in 2019 to 4.1 percent and by 0.1 percentage points for 2020 to 4.7 percent. The downward revisions for 2019 are almost across the board for the major economies, though for varied reasons. In China, the slight revision downwards reflects, in part, the higher tariffs imposed by the United States in May, while the more significant revisions in India and Brazil reflect weaker-than-expected domestic demand.
“The need for greater global cooperation is ever urgent. In addition to resolving trade and technology tensions, countries need to work together to address major issues such as climate change, international taxation, corruption, cybersecurity, and the opportunities and challenges of newly emerging digital payment technologies, said the fund on its report.
The full growth expectations report can be reached at IMF site here*.
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