Global economy forecast to grow in 2020 – but at a slower pace
29 Jan 2020
In its latest World Economic Outlook (WEO), the International Monetary Fund (IMF) is projecting the world economy will strengthen in 2020, albeit at a slightly slower pace than previously anticipated. This is due to threats related to trade policy uncertainty among major economies and escalating geopolitical tensions in the Middle East.
The IMF said the global economy will grow by an estimated 3.3% in 2020, down from the previous forecast of 3.4%. Growth in 2021 is expected to be 0.2 percentage points (ppts) lower than last year’s forecast.
The IMF, however, noted that “while the baseline growth projection is weaker, developments since the fall of 2019 point to a set of risks to global activity that is less tilted to the downside compared to the October 2019 WEO.”
Stable growth expected for developed economies
Real GDP growth in developed economies is anticipated to stabilise at 1.6% 2020 and 2021, a 0.1 ppt cut from the October 2019 WEO. This downgrade reflects downward revisions to the US and Euro Area.
The 2020 estimate for the US was cut by 0.1 ppt to 2%, and held at 1.7% for 2021. The IMF stated that “the moderation reflects a return to a neutral fiscal stance and anticipated waning support from further loosening of financial conditions.”
Growth in the Euro Area is forecast to improve from 1.2% in 2019 to 1.3% in 2020 (a downward revision of 0.1 ppt) and 1.4% in 2021. Projected improvements in external demand support the anticipated firming of growth.
The UK is expected to grow modestly and in line with the IMF’s previous projected rates at 1.3% in 2019, 1.4% in 2020 and 1.5% in 2021. This is based on an orderly exit from the EU later this year and a smooth transition to a new trading relationship from 2021.
Japan’s economy is projected to rise by 0.7% in 2020, up 0.2 ppt point from the IMF’s earlier estimate. This is largely due to stimulus measures to mitigate the impact of a recent consumption tax hike. Japan’s growth will likely moderate to 0.5% in 2021, unchanged from the October estimate, as the impact of the fiscal stimulus fades.
There are no published updates to Australia’s GDP growth forecasts in this WEO. However, the IMF in its December 2019 annual assessment is expecting the economy to expand by 2.2% in 2020, up from about 1.8% in 2019. Over the medium term, growth will reach the potential growth rate of about 2.5%, mainly supported by infrastructure spending and structural reforms. However, the IMF warned the risks to the economic outlook are tilted to the downside with subdued domestic confidence, heightened global policy uncertainty and a potential faster slowdown in China.
Developing economies set for growth
In emerging market and developing economies, growth is anticipated to rise from 3.7% in 2019 to 4.4% in 2020 and 4.6% in 2021 – a downgrade of 0.2 ppts in both years since the IMF’s last WEO. The latest forecast reflects a projected recovery from deep downturns for stressed and underperforming emerging market economies and an ongoing structural slowdown in China.
India’s growth is estimated at 4.8% in 2019, projected to improve to 5.8% in 2020 and 6.5% in 2021 (1.2 and 0.9 ppt lower than in the October 2019 WEO), supported by monetary and fiscal stimulus as well as subdued oil prices. However, India’s growth downgrade from the last WEO was because domestic demand has slowed sharply than expected amid stress in the non-bank financial sector and a decline in credit growth.
The IMF raised China’s estimate by 0.2 ppt to 6% in 2020 and cut 0.1 ppt to 5.8% in 2021. The IMF stressed that the phase one trade deal is likely to alleviate near-term cyclical weakness, though unresolved disputes on broader US-China economic relations “will continue weighing on activity.”
After slowing to 4.7% in 2019, growth in ASEAN-5 countries is projected to remain stable in 2020 before improving in 2021. Growth outlook has been revised down modestly for Indonesia and Thailand, where continued weakness in exports is weighing on domestic demand.