IMF: World Economic Growth to Recover on 2nd Half of 2019
Gita Gopinath IMF chief economist says the World Economic Outlook cut the global GDP forecast for this year to 3.5 percent from the 3.7 percent projected in October 2018. Footage by AFPTV via Getty Images.

JAKARTA (TheInsiderStories) – The world financial institution, International Monetary Fund (IMF) predicts an increase in world economic activity on the second half of 2019, said the economist on Tuesday (04/09). The recovery was supported by the resolution of trade agreements between the United States and China also fiscal stimulus and changes in monetary policy in developed countries.

IMF Chief Economist Gita Gopinath said the world economy had slowed to 70 percent in 2019. But the agency expects increased activity towards the end of this year. The prospect of fiscal stimulus is coordinated by major countries if global economic growth is disjointed.

“After a weak start, growth is projected to increase in the second half of 2019,” she revealed.

Although the IMF in its projections has reduced its forecast for world economic growth for the third time in the past six months, from 3.5 percent in January to 3.3 percent in 2019, the economy will recover and grow to 3.6 percent by 2020.

The increased growth, according to Gopinath, supported by significant monetary policy accommodation by major countries, made possible by the absence of inflationary pressures despite growing at almost near potential. Then the US-China trade agreement can be positive if there is a resolution of long-lasting trade uncertainty.

“The US Federal Reserve, European Central Bank, Japanese Bank, and the Bank of England have all shifted to a more accommodating attitude. China has increased its fiscal and monetary stimulus to overcome the negative impact of trade tariffs. In addition, the prospect of US-China trade tensions has increased as the prospects for trade agreements are formed,” she said.

This policy response has helped reverse tightening financial conditions to various levels in various countries. Emerging markets have experienced some re-opening of portfolio flows, decreasing sovereign borrowing costs, and strengthening their currencies relative to the US dollar.

While the increase in financial markets is very fast, those in the real economy are slow to materialize. The size of industrial production and investment is still weak at this time in many developed and developing market economies, and global trade has not recovered.

Gopinath sees this recovery as precarious and is based on a rebound in emerging markets and developing economies, where growth is projected to increase from 4.4 percent in 2019 to 4.8 percent by 2020.

Growth in developed countries will slow down a little in 2020, despite a partial recovery in the Euro area, as the impact of the US fiscal stimulus fades and growth tends towards the potential for modest groups, given the aging trend and low productivity growth.

After 2020, global growth is expected to stabilize around 3.5 percent, supported mainly by growth in China and India and their increasing weight in world income.

While growth in emerging markets and developing economies will be stable at 5 percent, although with considerable variation as developing countries Asia continues to grow faster than other regions. A similar pattern applies to low-income countries with some, especially commodity importers, growing rapidly but others far behind developed countries in terms of per capita.

The basic prospects for developing countries in Asia remain profitable, where border economic convergence in Indonesia, for example, leads to higher levels of income.

In all economies, Gonipath firmed, policy makers need to take actions that increase output potential, accommodative monetary policy, increase inclusiveness, strengthen resilience and adequate resources of multilateral institutions to maintain an effective global safety net.

There is a need for greater multilateral cooperation to resolve trade conflicts, to address climate change and risks from cyber security, and to improve the effectiveness of international taxation.

However, IMF economists are of the view that there is still an economic slowdown in some developed countries, in part because of the increased push from increases in US spending and tax cuts.

The IMF projects 2.3 percent growth for US in 2019 and growth of 1.9 percent in 2020. While for China, the IMF estimates growth of 6.3 percent in 2019 and 6.1 percent in 2020.

In emerging markets, the IMF warns that weak commodity prices and civil strife can weigh on Latin America, the Middle East, North Africa, Pakistan and parts of sub-Saharan Africa.

The IMF also stated the risk was tilted to the downside, noting an increase in further trade tensions, the potential for a sharp decline in market sentiment (such as from Brexit or fiscal uncertainty in Italy) or rapid changes in the DJIA market way-0.72 percent saw the Federal Reserve monetary policy.

Written by Daniel Deha, Email: daniel@theinsiderstories.com

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