The International Monetary Fund (IMF) in its October 2019 World Economic Outlook cut its global growth forecast to 3 percent for 2019, its lowest level since 2008-2009, and a 0.3 percent downgrade from its April 2019 World Economic outlook.
“The pace of global economic activity remains weak,” the IMF said in the report.
The fund pointed to manufacturing in particular as “weakening substantially” to levels comparable to those seen during the global financial crisis.
Ever-present geopolitical and trade tensions have also curbed growth prospects, with business confidence, investment activity, and global trade all effected.
The IMF expects growth to pick up in 2020 to 3.4 percent, a 0.2 percent downward revision from the April 2019 report. The downturn and projected recovery of growth is reflective of the same pattern with a group of emerging market economies, the fund added.
However, growth in four key systemic economies – the US, euro area, China, and Japan – is expected to moderate into 2020 and beyond. These four economies account for close to half of global GDP.
The emerging market economies that are expected to drive recovery include those that have been suffering severe strain, such as Argentina, Turkey, Venezuela, and Iran, and those that are due to underperform in 2019 in comparison to their historical averages – such as Brazil, Mexico, Russia, and Saudi Arabia.
These two groups, and an expected strengthening of growth in India for 2020 after a softening in 2019, “is the driving factor behind the forecast of an eventual global pickup,” the IMF said.
The move towards accommodative monetary policy, a phrase referring to the raft of central bank interest rate cuts throughout 2019, by the US and other developed and emerging market economies has “been a counterbalancing force,” the IMF said. However, authorities should continue this policy, the IMF added, to support demand and employment.
But, this trend does not come without risk. Accommodative policy will result in a further buildup in financial vulnerabilities, and authorities will need to remain vigilant of this risk.
In the medium-term, the IMF warns that productivity growth could suffer from an increase in trade and geopolitical tensions as supply chains may be disrupted.
The fund called for countries to resolve trade differences and remove discretionary barriers, such as tariffs, in order to facilitate growth revival.
Climate change was also a focus for the IMF. The fund stated that the need to curb greenhouse gas emissions and the consequences of global temperatures rising are “urgent global imperatives.”
The fund pointed to higher carbon pricing, fostering the development of low-carbon energy, and the development and adoption of green technology as key to countering these risks.