IMF cuts global growth fore­cast but sees im­prov­ing out­look

Muscat Daily - - BUSINESS -

Wash­ing­ton, US - Im­prov­ing USChina trade ten­sions have eased uncer­tainty and the world econ­omy may have hit bot­tom but a sharp slow­down in In­dia is cre­at­ing a drag world­wide, the In­ter­na­tional Mone­tary Fund (IMF) said on Mon­day.

How­ever, while the risks to the global econ­omy have less­ened, the Wash­ing­ton-based global lend­ing in­sti­tu­tion cau­tioned that out­comes ‘de­pend to an im­por­tant ex­tent on avoid­ing fur­ther es­ca­la­tion’ be­tween Wash­ing­ton and Bei­jing.

In the lat­est update to its World Eco­nomic Out­look, the IMF cut the global growth es­ti­mate for 2020 by one tenth com­pared to the prior re­port re­leased in Oc­to­ber, drop­ping it to 3.3 per cent.

It also low­ered the 2021 fore­cast by a bit more to 3.4 per cent.

The sharp drop for In­dia ‘ac­counts for the lion’s share of the down­ward re­vi­sions’, the IMF said.

The re­la­tion­ship be­tween China and the United States, the world’s dom­i­nant eco­nomic pow­ers, is still trou­bled by ‘un­re­solved dis­putes’ which con­tinue to be a fac­tor.

‘The risk of pro­tracted sub­par global growth re­mains tan­gi­ble de­spite ten­ta­tive signs of sta­bil­is­ing mo­men­tum,’ the fund warned in its quar­terly re­port.

‘Pol­icy mis­steps at this stage would fur­ther en­fee­ble an al­ready weak global econ­omy.’

US Pres­i­dent Don­ald Trump signed a deal with China last week that ends the es­ca­la­tion but leaves in place tar­iffs on two thirds of the goods im­ported from the Asian eco­nomic power.

The trade truce led to an up­grade of China’s growth fore­cast to 6 per cent in 2020, with a slight slow­down to 5.8 per cent pro­jected for next year.

But the gi­ant Asian econ­omy has been on a steadily slow­ing path for some time.

Mean­while, the IMF trimmed US growth just a tenth to 1.6 per cent this year, with a re­peat ex­pected in 2021.

Since 2018, Wash­ing­ton and Bei­jing have ex­changed tit-for­tat tar­iffs on hun­dreds of bil­lions of dol­lars in two-way trade.

And IMF chief Kristalina Ge­orgieva on Fri­day said the two coun­tries still have a long way to go to re­solve their trade dis­putes - although the par­tial deal signed last week is a step for­ward.

“Trade truce is not the same as trade peace,” she said.

In its pre­vi­ous anal­y­sis, the IMF had es­ti­mated that trade con­flicts and tar­iffs cut 0.8 per­cent­age points off of global growth. But two thirds of that dam­age was not due to the tar­iffs but to trade uncer­tainty cre­ated by the con­flict, which causes com­pa­nies to put the brakes on in­vest­ment.

If ten­sions flare again, or if Trump’s trade dis­pute with the Euro­pean Union or con­fronta­tion with Iran should worsen, that too could un­der­mine the ‘nascent bot­tom­ing out of global man­u­fac­tur­ing and trade, lead­ing global growth to fall short’ of fore­casts, the re­port said.

Re­ced­ing risks of a hard Brexit have helped sta­bilise the out­look for Bri­tain and the Euro­pean Union. And healthy pri­vate con­sump­tion have helped the still­slow but up­graded growth prospects in Ja­pan.

How­ever, the IMF once again slashed ex­pected GDP growth in In­dia by 1.2 points this year and 0.9 per­cent­age point in 2021 com­pared to the Oc­to­ber fore­casts.

While growth re­mains rel­a­tively ro­bust at 5.8 and 6.5 per cent for the two years re­spec­tively, it is not enough to con­tinue to re­duce poverty in the grow­ing South Asian econ­omy.

That na­tion has been one of the fastest grow­ing in the world and a ma­jor en­gine of global ex­pan­sion, to­gether with China, as ad­vanced economies have bumped along at far slower rates.

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