JAKARTA (TheInsiderStories) – Again, International Monetary Fund (IMF) cuts its economic growth forecast for the global economy in 2019 and the coming year. The Funds sees the global economy only grow 3.2 percent in 2019, lower than April’ estimate at 3.3 percent.
Next year’ growth little bit up to 3.5 percent, although that is below the previous estimate of 3.6 percent. IMF’ Chief Economist Gita Gopinath noted, “A modest revision of 0.1 percentage points for both years relative to our projections in April, it comes on top of previous significant downward revisions.”
The revision for 2019 reflects negative surprises for growth in emerging market and developing economies that offset positive surprises in some advanced economies, she adds.
“The revision to 2019 reflects a negative surprise for growth in emerging markets and developing economies that offset positive surprises in some developed countries,” she said in an official statement released on July 23.
She revealed, dynamism in the global economy is weighed down by prolonged policy uncertainty as trade tensions continue to increase despite the recent United States (US) – China trade ceasefire, technological tensions have erupted threatening global technology supply chains, and disagreeing Brexit prospects have escalated and escalated geopolitical tensions.
“Global growth is slow and precarious, but it doesn’t have to be this way because some of them are self-defeating,” she added.
The negative consequences of policy uncertainty are seen in the divergent trends between the manufacturing and service sectors, and significant weaknesses in global trade. The manufacturing purchasing managers’ index continues to decline as business sentiment deteriorates because businesses delay investment in the face of high uncertainty.
Global trade growth, she said, which moves close to investment, has slowed significantly to 0.5 percent in the first quarter (1Q) of 2019, which is the slowest pace since 2012. On the other side, the service sector is holding back and consumer sentiment is strong, because the unemployment rate touched a record low and wage income rose in some countries.
Among developed countries such as the United States, Japan, United Kingdom, and Euro area grew faster than expected in the 1Q 2019. However, several factors behind this such as stronger inventory increases are temporary and future growth momentum is expected to weaker, especially for countries that depend on external demand.
Therefore, the IMF revised its US growth forecast for the next quarter, by raising the forecast for a small economy, by 0.1 percentage points, to 1.9 percent for 2019. Looking ahead, growth is projected to slow to 1.7 percent, due to the effect from reduced fiscal stimulus in the US and weak productivity growth and aging demographics reduce the long-term outlook for the advanced economy.
While in emerging economies, growth was revised down by 0.3 percentage points in 2019 to 4.1 percent and 0.1 percentage points for 2020 to 4.7 percent. In China, a slight downward revision reflected higher rates imposed by the US in May, while more significant revisions in India and Brazil reflected weaker-than-expected domestic demand.
“Projected recovery in growth between 2019 and 2020 in emerging and developing countries depends on better growth outcomes in stressed countries such as Argentina, Turkey, Iran and Venezuela, and is therefore subject to significant uncertainties,” said Gopinath.
Furthermore, emerging markets and developing countries have benefited from monetary easing in major countries but also face volatile risk sentiments related to trade tensions. Financial conditions in the US and the euro area are increasingly easing, as the Federal Reserve and the European Central Bank adopt a more accommodating stance of monetary policy.
The IMF estimated, with weak global growth and downside risks dominating the outlook, the global economy remains at a difficult point at the moment.
Therefore, the agency considers it important that tariffs are not used to target the bilateral trade balance or as a general-purpose tool to overcome international disagreements. While to help resolve conflicts, the rule-based multilateral trading system must be strengthened and modernized to cover areas such as digital services, subsidies, and technology transfers.
Going forward, the IMF urged monetary policy to remain accommodative especially where inflation slows below the target and is accompanied by sound trade policies that will lift prospects and reduce the risk of decline.
“With persistent low-interest rates, macroprudential tools must be used to ensure that financial risk does not accumulate,” she emphasized.
In addition, the IMF asks countries to invest in physical and social infrastructure to increase growth potential. If there is a severe decline, steps synchronized towards more accommodative fiscal policies must complement monetary easing, depending on country-specific circumstances.
Finally, the IMF looks at the importance of the need for more inclusive global cooperation to resolve trade and technology tensions, climate change, international taxation, corruption, cybersecurity, and the opportunities and challenges of emerging digital payment technology.
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