The International Monetary Fund on Monday cut the global growth forecasts for this year and next, mainly due to the weaker-than-expected expansion in India. Global growth for this year is projected at 3.3 percent, which is 0.1 percentage point less than the forecast made in October, the international lender said in its latest World Economic Outlook. The growth rate is projected to rise to 3.4 percent next year, which is 0.2 percentage points less than the October forecast. The growth estimate for 2019 was lowered to 2.9 percent from 3.0 percent. "The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years," the IMF report said. In a few cases, this reassessment also reflects the impact of increased social unrest, the report added. "There are now tentative signs that global growth may be stabilizing, though at subdued levels," IMF chief economist Gita Gopinath said in a blog. "The pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for underperforming emerging and developing economies such as Brazil, India, and Mexico," she said.
There are no clear signs of a turning point and there is simply no room for complacency, Gopinath added. India's growth forecast for 2020 was cut by 1.2 percentage point to 5.8 percent, and the outlook for next year was lowered by 0.9 percentage point to 6.5 percent. Growth was estimated at 4.8 percent in 2019. Domestic demand slowed more sharply than expected in India amid stress in the non-bank financial sector and a decline in credit growth, the IMF said. The improvement in growth is expected to be supported by monetary and fiscal stimulus as well as subdued oil prices. "A more subdued growth forecast for India accounts for the lion's share of the downward revisions [of global projections]," the IMF report said.
Risks to global activity are less tilted to the downside compared to the October WEO, the IMF said.
The lender expects these early signs of stabilization to persist and "eventually reinforce the link between still-resilient consumer spending and improved business spending."
Fading distinct drags in key emerging markets and the effects of monetary easing are also expected to contribute to the rebound in the global activity. The 2019 global growth estimate and 2020 projection would have been 0.5 percentage point lower in each year without monetary stimulus, the report said. That said, downside risks remain prominent and includes rising geopolitical tensions, mainly those between the US and Iran, intensifying social unrest, further worsening of relations between the US and its trading partners, and a deepening economic frictions between other countries. "A materialization of these risks could lead to rapidly deteriorating sentiment, causing global growth to fall below the projected baseline," the IMF warned. The lender also pointed out weather-related disasters such as hurricanes in the Caribbean, drought and bushfires in Australia, floods in eastern Africa, and drought in southern Africa, as new challenges to global growth. Advanced economies' growth forecast for 2020 was lowered by 0.1 percentage point to 1.6 percent, mainly due to downward revisions to the outlook for the US, Euro area, the UK and some key Asian economies, notably Hong Kong. Growth is expected to continue at the same pace in 2021. The U.S. growth forecast for 2020 was cut by 0.1 percentage point to 2 percent, slowing from an estimated 2.3 percent in 2019. The economy is expected to expanded 1.7 percent in 2021. Eurozone growth outlook for this year was lowered by 0.1 percentage points to 1.3 percent, which is a tad stronger than the estimated 1.2 percent expansion in 2019. The improvement was attributed to better external demand support to growth. The economy is forecast to grow 1.4 percent in 2021. Among the big four of the euro area, the projections for France and Italy were left unchanged, while those for Germany were marked down due to the sluggishness in manufacturing. The outlook for Spain was also lowered due to to carryover from a stronger-than-expected deceleration in domestic demand and exports in 2019.
Growth in the UK is expected to stabilize at 1.4 percent in 2020 and to improve to 1.5 percent in 2021. These were unchanged from the October projections. The projections assume an orderly exit from the European Union at the end of January followed by a gradual transition to a new economic relationship, the report said. Japan's growth was projected to eased to 0.7 percent in 2020 from 1 percent in 2019. However, the forecasts were upwardly revised from those in October, mainly due to healthy private consumption. That said, growth is expected to slow to 0.5 percent in 2021 on the fading impact of fiscal stimulus. China's growth is expected slow to 6 percent in 2020 from 6.1 percent in 2019. The growth rate is seen easing further to 5.8 percent in 2021. The 2020 projection was upwardly revised by 0.2 percentage points due to the easing trade tensions with the US after the "Phase One" trade deal and the consequent partial rollback in tariffs.
"However, unresolved disputes on broader US-China economic relations as well as needed domestic financial regulatory strengthening are expected to continue weighing on activity," the IMF said.
In Latin America, Chile saw a sizable markdown to growth forecasts due to the social unrest.