The International Monetary Fund revised down the projection of Indonesia' economic growth from 0.5 percent in June to contraction 1.5 percent by the end of 2020 - Photo by IMF Office

JAKARTA (TheInsiderStories) – The International Monetary Fund (IMF) lowered its global growth projections, mostly due to a surprisingly sharp slowdown in India and other emerging markets. In the latest update to its World Economic Outlook, released Monday (01/20), the funds estimate growth at 3.3 percent this year, down from 3.4 percent and also cut the 2021 forecast to 3.4 percent from 3.6 percent.

At its last update in October 2019, the IMF had forecast GDP growth of 3 percent in 2019 — the slowest rate since the financial crisis — and growth of 3.4 percent in 2020. The fund said in October it saw a “synchronized slowdown” and those estimates were a downgrade on earlier global growth forecasts.

Monday’s downgrades were driven by a downward revision of India’s economy and increased social unrest around the world last year. India’s 2020 outlook was slashed by more than a percentage point. There were also very modest downgrades to projections for the United States (US) and the euro area. The prediction for global trade volume growth was cut to 2.9 percent from 3.2 percent, though that would still be far better than last year’s 1 percent.

“India’s downgrade was because domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth,” the fund said.

There’s also a clear impact from the US-China trade pact. According to the IMF, it reduces the cumulative negative effect on output from the battle through 2020 to 0.5 percent from 0.8 percent.

While risks have eased, the IMF was clear that that there’s still plenty to worry about. Progress in trade talks is stop-start, simmering US-Iran tensions could hit oil supply, and there’s also social unrest and weather-related disasters.

“The risk of protracted subpar global growth remains tangible despite tentative signs of stabilizing momentum,” it said.

The fund held or reduced its estimates for most of the world’s biggest economies for 2020, with Japan a notable exception. It raised the outlook to 0.7 percent from 0.5 percent, reflecting the anticipated boost from stimulus measures undertaken in December.

IMF raised China’s estimate by 0.2 percentage point to 6 percent. 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.”

The 2020 estimate for the US was lowered by 0.1 percentage point to 2 percent, and 2021 held at 1.7 percent. While, the IMF’s growth forecasts for the United Kingdom were unchanged from October, at 1.4 percent in 2020 and 1.5 percent in 2021.

“After a synchronized slowdown in 2019, we expect a moderate pick-up in global growth this year and next,” IMF Managing Director Kristalina Georgieva said in a statement. “We already see some tentative signs of stabilization.

“But we have not reached a turning point yet. Moreover, we are revising slightly downwards our October projections for 2019, 2020, 2021. The reality is that global growth remains sluggish,” she adds.

Georgieva said the IMF’s current outlook could be summarised as “tentative stabilization, sluggish recovery.” Georgieva urged policymakers around the world to continue to keep interest rates low, spend money to boost growth, and pursue reforms to boost high-growth areas of the economy such as fintech.

She added that the start of the new decade was also “eerily reminiscent” of the start of the 1920s, with high inequality, a rapid spread of technology, and high risk and reward in finance. She urged governments around the world to tackle these issues.

The latest edition of the IMF’s bi-annual forecast is timed to coincide with the World Economic Forum (WEF)’s annual meeting in Davos, which begins tonight in Switzerland. Around 3,000 top politicians and business leaders will meet this week to discuss the biggest issues facing the world in 2020.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com