## FOREWORD ## Source details **Canonical URL:** [FOREWORD](https://www.imf.org/-/media/files/publications/weo/2019/april/english/foreword.pdf) ## Other formats - [Markdown version](/-/media/files/publications/weo/2019/april/english/foreword.pdf.md) - [Structured JSON version](/-/media/files/publications/weo/2019/april/english/foreword.pdf.json) --- ### Global growth overview and recent developments - One year ago the global economy was projected to grow at 3.9 percent in 2018 and 2019. - Growth peaked at close to 4 percent in 2017, softened to 3.6 percent in 2018, and is projected to decline further to 3.3 percent in 2019. - The WEO projects a decline in growth in 2019 for 70 percent of the global economy. - Drivers of the slowdown in the second half of 2018 include: - Escalation of US–China trade tensions. - Macroeconomic stress in Argentina and Turkey. - Disruptions to the auto sector in Germany. - Tighter credit policies in China. - Financial tightening and normalization of monetary policy in larger advanced economies. ### Short-term outlook and policy responses - A pickup is expected in the second half of 2019, supported by significant policy accommodation by major economies. - Central bank and policy moves noted: - The US Federal Reserve paused interest rate increases and signaled no increases for the rest of the year. - The European Central Bank, the Bank of Japan, and the Bank of England shifted to a more accommodative stance. - China ramped up fiscal and monetary stimulus to counter trade tariff effects. - Effects on financial markets and real economy: - Financial conditions have loosened to varying degrees; emerging markets saw resumption of portfolio flows, a decline in sovereign borrowing costs, and currency strengthening versus the dollar. - Measures of industrial production and investment remain weak for most advanced and emerging economies; global trade has yet to recover. ### Medium- and longer-term projections - Global economic growth in 2020 is projected to return to 3.6 percent, conditional on rebounds in Argentina and Turkey and improvement in other stressed emerging market and developing economies. - Beyond 2020, growth will stabilize at around 3½ percent, driven mainly by China and India and their increasing weights in world income. - Growth in advanced economies will continue to slow gradually as US fiscal stimulus fades and growth tends toward the modest long-term potential given ageing trends and low productivity growth. - Growth in emerging market and developing economies will stabilize at around 5 percent, with considerable variance across countries due to subdued commodity prices and civil strife. ### Major risks and channels of vulnerability - Downside risks highlighted: - Renewed escalation of trade tensions and wider disruptions to global supply chains (including the auto industry). - Growth in China surprising on the downside. - Heightened risks surrounding Brexit. - Rapid deterioration in financial conditions triggered by a risk-off episode or a no-deal Brexit, especially where large private and public sector debt and sovereign-bank doom loop risks exist (for example, in Italy). - If downside risks materialize, recoveries in stressed, export-dependent, and highly indebted economies may not occur, at a time when conventional monetary and fiscal space is limited. ### Policy recommendations and priorities - Macroeconomic and financial policy: - Avoid costly policy mistakes and reduce policy uncertainty through cooperative policymaking to protect investment. - Fiscal policy should manage trade-offs between supporting demand and ensuring public debt sustainability; the optimal mix depends on country-specific circumstances. - Monetary policy should remain data dependent, be well communicated, and ensure that inflation expectations remain anchored. - Financial sector policies must address vulnerabilities proactively by deploying macroprudential tools. - Structural and sectoral policies: - Low-income commodity exporters should diversify away from commodities given the subdued outlook for commodity prices. - Take actions that boost potential output, improve inclusiveness, and strengthen resilience. - Promote social dialogue across stakeholders to address inequality and political discontent. - Greater multilateral cooperation is needed to resolve trade conflicts, address climate change and cybersecurity risks, and improve international taxation. - Contingent and coordinated responses if risks materialize: - Synchronized, country-specific policy stimulus across economies, complemented by accommodative monetary policy, may be required. - Synchronization can enhance the effectiveness of fiscal stimulus through signaling effects on confidence and mitigation of import leakages. - Maintain adequate resources for multilateral institutions to preserve an effective global safety net. ### Key thematic findings from the WEO chapters - Chapter 2: Corporate market power and markups - The aggregate increase in markups since 2000 has been modest, with relatively modest macroeconomic implications. - There is significant heterogeneity: a small number of more productive and innovative firms have driven a more substantial increase in markups. - Current dynamics reflect winner-takes-most effects and markups that partly compensate for investment in intangible assets. - Risk going forward: market dominance could weaken market entry and competition, dampen investment and innovation. - Policy implication: cut barriers to market entry and reform and strengthen competition law to better align with the new economy. - Chapter 3: Trade barriers and investment - Over the past three decades the relative price of machinery and equipment has fallen in all countries, supporting higher real investment rates in machinery and equipment and benefiting developing countries. - Rising trade tensions could reverse these price declines and damage investment, emphasizing the need to quickly resolve trade disagreements. - Chapter on tariffs and trade imbalances: - Bilateral trade balances since the mid-1990s have reflected mostly aggregate macroeconomic forces rather than bilateral tariffs. - Targeting bilateral trade balances with bilateral measures will likely lead to trade diversion with limited impact on country-level balances. - This helps explain why, despite tariff measures, the US trade deficit is the largest it has been since 2008. - The negative impact of tariffs on output is significantly higher today than in 1995 because of the larger role of global supply chains. _Gita Gopinath, Economic Counsellor, International Monetary Fund | April 2019_ --- _Source: https://www.imf.org/-/media/files/publications/weo/2019/april/english/foreword.pdf_