Overseas Network, Jan. 22, International Monetary Fund (IMF) released the World Economic Outlook on the first day of the Davos Forum, reducing the global economic growth expectations of 2019 and 2020 by 0.2 and 0.1 percentage points, respectively, to 3.5% and 3.6%. This is the third downward revision after two downward projections in July and October last year.
As far as countries concerned are concerned, the IMF maintains its expectations of 2.5% and 1.8% growth in the United States in 2019 and 2020, and maintains its forecast of 6.2% growth in China this year and next year; lowers the expectation of 0.3% to 1.6% in the eurozone; and lowers the expectation of growth in emerging market economies to 4.5%.
The Wall Street Journal of the United States wrote that the IMF had earlier predicted stable global economic growth and now recognized slow global economic growth, but it is not yet ready to reach global economic recession.
Christina Lagarde, IMF president, also stressed at the Davos Forum that the risk of a global slowdown in economic growth in 2019 is higher, but it will not show a downward trend. At the same time, she called on policy makers from all countries to cooperate multilaterally to meet the challenges facing the trading system.
Financing environment tightens the risk of capital outflow from emerging markets
The IMF report points out that the economic growth of developed economies will continue to decline in the next two years due to the downward revision of the euro zone economy. The overall growth rate will decrease from 2.3% in 2018 to 2.0% in 2019 and further to 1.7% in 2020. Meanwhile, the growth rate of developing economies is expected to slow slightly to 4.5% this year and to rebound to 4.9% in 2020.
In the IMFs view, many factors triggered the global economic downturn, including the Federal Reserve interest rate hike, the withdrawal of the European Central Bank from QE (quantitative easing) bond purchase program, the tightening of financing environment since last autumn, and the high level of public and private debt.
Specific data show that although the global economy is still expanding, in the third quarter of last year, the growth rate of some economies has been lower than expected. In the fourth quarter of last year, industrial production began to slow in areas other than the United States, and Global trade volume was far below the 2017 average.
Against this background, the worlds major central banks are more cautious. The Federal Reserve has begun to release dove signals, suggesting a slowdown in interest rate hikes this year and next. Although the European Central Bank ended its debt-buying program in December last year, it still said that monetary policy would remain loose and that it would not start the interest rate hike process before this summer.
In 2018, the global stock market, bond market and oil market all fell. Investors began to reduce the allocation of risky assets. Emerging market economies began to encounter net capital outflow in the third quarter of 2018. The latest report of the United Nations Conference on Trade and Development (UNCTAD) shows that global foreign direct investment (FDI) dropped by 19% in 2018, mainly because American enterprises have withdrawn funds to enjoy new tax relief policies, which leads to the outflow of funds from emerging markets, equivalent to withdrawing funds from the global economy.
The IMF expects economic growth in emerging and developing Asian countries to slow by 0.2 percentage points to 6.3 per cent in 2019. According to the Wall Street Journal, these include weak private investment, Mexico, an energy-exporting economy, and Turkey, which suffered a currency crisis last year.
It is worth mentioning that the IMF maintained its forecast of 6.2% economic growth for China this year and next. Regarding the economic growth data of 2018 released by the National Bureau of Statistics on the 21st, Gita Gopinat, the new chief economist of the IMF, said that Chinas economy has not experienced any sharp slowdown. The annual growth rate of 6.6% of GDP is in line with the previous forecast of the IMF, and also with the maturity of Chinas economy.
Potential Crisis Increased and the Impact of Stimulating Economic Policies in Europe and the United States faded
Bloomberg pointed out that the IMFs downward revision of global economic growth expectations was mainly due to the poor performance of the European economy. In 2018, German economic growth expectations were cut by 0.6 percentage points due to weak consumption and industrial output data; Italian growth expectations were cut by 0.4 percentage points due to weak domestic demand and high government borrowing costs; and French growth expectations were cut by 0.1 percentage points due to the persistence of the yellow vest protests.
According to the Wall Street Journal, many potential political and economic risks in the West in 2019 may affect the stability of global financial markets, including the delay in the announcement of the Italian budget, the long-standing suspension of U.S. government departments and the failure to reach an agreement on Britains separation from Europe. In particular, the IMF cites the risks of Britains no agreement exit from Europe. In the absence of a specific agreement with the EU, Britains withdrawal from the EU may have a negative spillover effect on Europe as a whole.
The IMF also referred to the impact of the closure of the U.S. government on the global economy. As of January 21, the U.S. government closed its doors on the 31st day, constantly refreshing the record of the longest shutdown in history. The IMF predicts that the U.S. economy will continue to grow at 2.5% in 2019, but growth in the worlds largest economy will cool to 1.8% by 2020 as tax cuts and stimulus policies fade and the U.S. economy responds to the Feds interest rate hike.
Slowing Growth Kinetic Energy Resolving Trade Divergences through Global Cooperation
There is no need to worry too much about the IMFs downward revision of global economic growth expectations. Although the 3.5% growth rate is the lowest in nearly three years, it is still stronger than the 3.2% growth rate in 2016, which means that the global economy is still expanding, Gopinat said.
UBS chairman and former governor of the German central bank Wilbur Ang said: The market is always easy to go from extreme optimism to extreme pessimism. I think the market is too pessimistic. At present, the momentum of global economic growth is only moderately slowing down, but we have not entered a recession.
Given that global growth momentum has reached its peak and downside risks exist in economic growth, policymakers in various countries should attach importance to domestic policies to prevent further slowdown of growth and strengthen economic resilience. Policymakers need to make rational assessments of rising risks, Gopinat said. Lagarde also emphasized that the risk value of the decline in global economic growth increased. Policymakers must address existing vulnerabilities and be prepared to deal with the possibility of a severe recession. In order to stimulate economic resilience, it is necessary to reduce high government debt, which can provide space for dealing with future recessions. She also called on policymakers to take immediate action to remove the obstacles to economic growth, and suggested that the main policy priorities of countries should be to quickly resolve trade differences and policy uncertainties in a cooperative manner. Source: Author of Overseas Network: Zhang Qi, Editor-in-Charge: Li Xi_NN2587
Given that global growth momentum has reached its peak and downside risks exist in economic growth, policymakers in various countries should attach importance to domestic policies to prevent further slowdown of growth and strengthen economic resilience. Policymakers need to make rational assessments of rising risks, Gopinat said.
Lagarde also emphasized that the risk value of the decline in global economic growth increased. Policymakers must address existing vulnerabilities and be prepared to deal with the possibility of a severe recession. In order to stimulate economic resilience, it is necessary to reduce high government debt, which can provide space for dealing with future recessions. She also called on policymakers to take immediate action to remove the obstacles to economic growth, and suggested that the main policy priorities of countries should be to quickly resolve trade differences and policy uncertainties in a cooperative manner.