Global growth to slow in 2019 and 2020

The International Monetary Fund (IMF) has trimmed its projected rates for world growth to 3.2% in 2019 and 3.5% in 2020.

While this is a modest revision of 0.1 percentage points (ppts) relative to its projections in April, the cuts come on top of previous downward revisions. In January 2019, the IMF’s predicted rates were 3.5% in 2019 and 3.6% in 2020.

The latest revisions reflect a major cut of 0.3 ppts for emerging market and developing economies. This offsets a small revised growth rate of 0.1 ppts for advanced economies.

Looking forward, world growth is expected to improve in 2020. However, the IMF has warned most of the forecast increase relies on an improvement in stressed emerging market and developing economies. It is therefore subject to high uncertainty.

‘Risks to the forecast are mainly to the downside,’ the IMF noted.

Subdued growth for advanced economies

For advanced economies, growth remains subdued in 2019 and 2020.

In the US, growth in 2019 is expected to be 2.6% (0.3 ppts higher than the IMF’s forecast in April), moderating to 1.9% in 2020 as the fiscal stimulus unwinds. The revised 2019 figure reflects a better-than-anticipated performance in recent months. While the headline number was robust due to strong exports and inventory accumulation, domestic demand was slightly weaker than expected and imports softer, in part reflecting the effect of tariffs.

Average growth in the Euro area is projected at 1.3% in 2019 and 1.6% in 2020. The forecast for 2019 is revised down slightly for Germany due to weaker-than-expected external demand. The forecast is unchanged for France where fiscal measures are expected to support growth. The negative effects of street protests are also dissipating.

The UK ’s GDP is predicted to expand at 1.3% in 2019 and 1.4% in 2020 (0.1 ppts higher in 2019 than forecast in April). The IMF noted the upward revision in 2019 reflects a stronger-than-anticipated first quarter outcome boosted by pre-Brexit inventory accumulation and stockpiling. However, this is likely to be partially offset by payback over the remainder of the year.

Japan ’s economy is forecast to grow by 0.9% in 2019, which was 0.1 ppts less than expected in the April report. Growth is projected to slow to 0.4% in 2020, with fiscal measures anticipated to mitigate the negative impact on consumer spending from the upcoming October 2019 hike in the consumption tax rate (from 8% to 10%).

Growth rates cut in emerging market and developing economies

In emerging market and developing economies, growth has been revised down by 0.3 ppts to 4.1% in 2019 and by 0.1 ppts to 4.7% in 2020.

China ’s economic outlook continues to be affected by tariffs on trade and investment, adding to the woes of a structural slowdown. India’s economy was clouded by weaker-than-expected domestic demand. The growth rates are expected to be around 6% for China and about 7% for India in both 2019 and 2020.

The IMF has sharply cut its growth projections for Latin America by 0.8 ppts to 0.6% in 2019. The Fund points to the mostly individual problems in countries such as Brazil, Mexico and particularly Venezuela for the broader downturn.