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Executive Summary: A Weakening Expansion

Global economic growth slowed in the second half of 2018 and is projected to moderate further to 3.3% in 2019 before a modest pickup to 3.6% in 2020. The growth outlook faces downside risks including further escalation of trade tensions. Policy priorities are avoiding actions that could harm economic activity and facilitating a soft landing where support needs to be withdrawn. Macroeconomic policies should support demand where output remains below potential.

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63 views2 pages

Executive Summary: A Weakening Expansion

Global economic growth slowed in the second half of 2018 and is projected to moderate further to 3.3% in 2019 before a modest pickup to 3.6% in 2020. The growth outlook faces downside risks including further escalation of trade tensions. Policy priorities are avoiding actions that could harm economic activity and facilitating a soft landing where support needs to be withdrawn. Macroeconomic policies should support demand where output remains below potential.

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prashantk_106
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© © All Rights Reserved
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EXECUTIVE SUMMARY

A Weakening Expansion Figure 1. Half-Yearly Growth Rates


(Annualized semiannual percent change)
After strong growth in 2017 and early 2018, global
economic activity slowed notably in the second half Global growth is expected to level off in the first half of 2019 and firm up after that.
of last year, reflecting a confluence of factors affecting
major economies. China’s growth declined following 6
a combination of needed regulatory tightening to rein
in shadow banking and an increase in trade tensions 5
with the United States. The euro area economy lost
more momentum than expected as consumer and
4
business confidence weakened and car production in
Germany was disrupted by the introduction of new
emission standards; investment dropped in Italy as 3
sovereign spreads widened; and external demand,
especially from emerging Asia, softened. Elsewhere, 2
natural disasters hurt activity in Japan. Trade tensions
increasingly took a toll on business confidence and, so, Advanced economies
1 Emerging market and developing
financial market sentiment worsened, with financial economies
conditions tightening for vulnerable emerging markets World
in the spring of 2018 and then in advanced economies 0
2016:H1 17:H1 18:H1 19:H1 20:H2
later in the year, weighing on global demand. Condi-
tions have eased in 2019 as the US Federal Reserve Source: IMF staff estimates.
signaled a more accommodative monetary policy
stance and markets became more optimistic about a
US–China trade deal, but they remain slightly more ket sentiment, the waning of some temporary drags
restrictive than in the fall. on growth in the euro area, and a gradual stabilization
of conditions in stressed emerging market economies,
including Argentina and Turkey. Improved momen-
Global Growth Is Set to Moderate in the tum for emerging market and developing economies is
Near Term, Then Pick Up Modestly projected to continue into 2020, primarily reflecting
As a result of these developments, global growth is developments in economies currently experiencing
now projected to slow from 3.6 percent in 2018 to macroeconomic distress—a forecast subject to notable
3.3 percent in 2019, before returning to 3.6 percent uncertainty. By contrast, activity in advanced econo-
in 2020. Growth for 2018 was revised down by 0.1 mies is projected to continue to slow gradually as the
percentage point relative to the October 2018 World impact of US fiscal stimulus fades and growth tends
Economic Outlook (WEO), reflecting weakness in the toward the modest potential for the group.
second half of the year, and the forecasts for 2019 and  Beyond 2020, global growth is set to plateau at
2020 are now marked down by 0.4 percentage point about 3.6 percent over the medium term, sustained
and 0.1 percentage point, respectively. The current by the increase in the relative size of economies, such
forecast envisages that global growth will level off in as those of China and India, which are projected to
the first half of 2019 and firm up after that (Figure have robust growth by comparison to slower-growing
1). The projected pickup in the second half of 2019 is advanced and emerging market economies (even
predicated on an ongoing buildup of policy stimulus though Chinese growth will eventually moderate). As
in China, recent improvements in global financial mar- noted in previous WEO reports, tepid labor produc-

International Monetary Fund | April 2019 xv


WORLD ECONOMIC OUTLOOK: GROWTH SLOWDOWN, PRECARIOUS RECOVERY

tivity growth and slowing expansion of the labor force global growth slowdown; and prolonged fiscal
amid population aging will drag advanced economy uncertainty and elevated yields in Italy—particularly
growth lower over the projection horizon. if coupled with a deeper recession—with possible
Growth across emerging market and developing adverse spillovers for other euro area economies. A
economies is projected to stabilize slightly below 5 rapid reassessment by markets of the monetary policy
percent, though with variations by region and coun- stance in the United States could also tighten global
try. The baseline outlook for emerging Asia remains financial conditions. Over the medium term, climate
favorable, with China’s growth projected to slow change and political discord in the context of rising
gradually toward sustainable levels and convergence in inequality are key risks that could lower global poten-
frontier economies toward higher income levels. For tial output, with particularly severe implications for
other regions, the outlook is complicated by a com- some vulnerable countries.
bination of structural bottlenecks, slower advanced
economy growth and, in some cases, high debt and
tighter financial conditions. These factors, alongside Policy Priorities
subdued commodity prices and civil strife or conflict Amid waning global growth momentum and limited
in some cases, contribute to subdued medium-term policy space to combat downturns, avoiding policy
prospects for Latin America; the Middle East, North missteps that could harm economic activity needs to be
Africa, and Pakistan region; and parts of sub-Saharan the main priority. Macroeconomic and financial policy
Africa. In particular, convergence prospects are bleak should aim to prevent further deceleration where
for some 41 emerging market and developing econo- output could fall below potential and facilitate a soft
mies, accounting for close to 10 percent of global landing where policy support needs to be withdrawn.
GDP in purchasing-power-parity terms and with At the national level, this requires monetary policy
total population close to 1 billion, where per capita to ensure that inflation remains on track toward the
incomes are projected to fall further behind those in central bank’s target (or if it is close to target, that it
advanced economies over the next five years. stabilizes there) and that inflation expectations remain
anchored. It requires fiscal policy to manage trade-
offs between supporting demand and making sure
Risks Are Tilted to the Downside that public debt stays on a sustainable path. Where
While global growth could surprise favorably if fiscal consolidation is needed and monetary policy is
trade differences are resolved quickly so that busi- constrained, its pace should be calibrated to secure
ness confidence rebounds and investor sentiment stability while avoiding harming near-term growth
strengthens further, the balance of risks to the outlook and depleting programs that protect the vulnerable. If
remains on the downside. A further escalation of trade the current slowdown turns out to be more severe and
tensions and the associated increases in policy uncer- protracted than expected in the baseline, macroeco-
tainty could further weaken growth. The potential nomic policies should become more accommodative,
remains for sharp deterioration in market sentiment, particularly where output remains below potential and
which would imply portfolio reallocations away from financial stability is not at risk. Across all economies,
risk assets, wider spreads over safe haven securities, the imperative is to take actions that boost potential
and generally tighter financial conditions, especially output growth, improve inclusiveness, and strengthen
for vulnerable economies. Possible triggers for such resilience. At the multilateral level, the main priority
an episode include a no-deal Brexit withdrawal of the is for countries to resolve trade disagreements coopera-
United Kingdom from the European Union; persis- tively, without raising distortionary barriers that would
tently weak economic data pointing to a protracted further destabilize a slowing global economy.

xvi International Monetary Fund | April 2019

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