## weoupdateengjuly2019

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---

### Still Sluggish Global Growth — Overview and Momentum
- Global growth forecast: 3.2 percent in 2019; 3.5 percent in 2020 (both 0.1 percentage point lower than in the April WEO projections for both years).
- Recent indicators point to weaker-than-anticipated global activity: subdued investment and demand for consumer durables across advanced and emerging market economies.
- The projected 2020 pickup presumes stabilization in stressed emerging market and developing economies and progress toward resolving trade policy differences.
- About 70 percent of the increase in the global growth forecast for 2020 relative to 2019 is accounted for by projected stabilization or recovery in stressed economies.

- Sectoral and cyclical observations:
  - Service sector activity has held up.
  - Global manufacturing slowdown that began in early 2018 continued, reflecting weak business spending (machinery and equipment) and consumer purchases of durable goods.
  - Inventory accumulation and soft imports have distorted GDP readings in some countries (lifting US and UK GDP in Q1; boosting output in China and Japan).
  - Firms and households are holding back long-range spending amid elevated policy uncertainty.

### Subdued momentum — Trade, Inflation, and Financial Sentiment
- Trade and demand:
  - Trade volume growth declined to around ½ percent year-on-year in Q1 2019 after dropping below 2 percent in Q4 2018.
  - The slowdown was particularly notable in emerging Asia.
  - Weak trade prospects create headwinds for investment; purchasing managers’ surveys point to a weak outlook for manufacturing and trade, especially new orders.
- Inflation:
  - Core inflation across advanced economies has softened below target (example: United States) or remained well below it (euro area, Japan).
  - Core inflation has dropped further below historical averages in many emerging market and developing economies, except Argentina, Turkey, and Venezuela.
  - Supply influences, notably oil price movements (affected by civil strife in Venezuela and Libya and US sanctions on Iran), have dominated commodity price changes.
  - Despite an oil price run-up through April and higher import tariffs in some countries, cost pressures have been muted due to still-tepid wage growth; headline inflation has remained subdued across most economies.
  - Market pricing of expected inflation has dropped sharply in the United States and the euro area.
- Risk appetite and policy cues:
  - Policy actions and missteps have materially affected market sentiment and business confidence.
  - Risk sentiment regained some ground in June, supported by central bank communications signaling likely further accommodation and by the June G20 summit agreement to resume US-China trade talks.
  - Financial conditions in the United States and the euro area are easier than at the time of the April WEO; conditions remained broadly unchanged for other regions.

### Global growth projections (selected figures)
- Global: 3.2 percent in 2019; 3.5 percent in 2020 (both 0.1 percentage point lower than April WEO).
- Forecast incorporates May 2019 US tariff increase on $200 billion of Chinese exports from 10 percent to 25 percent, and Chinese retaliation.
- Advanced economies: 1.9 percent in 2019; 1.7 percent in 2020.
  - United States: 2.6 percent in 2019 (0.3 percentage point higher than April WEO); 1.9 percent in 2020.
  - Euro area: 1.3 percent in 2019; 1.6 percent in 2020 (0.1 percentage point higher than April WEO).
    - Germany: 2019 forecast revised down slightly due to weaker-than-expected external demand.
    - France: 2019 forecast unchanged.
    - Italy: 2019 forecast unchanged.
    - Spain: 2019 forecast revised up.
  - United Kingdom: 1.3 percent in 2019; 1.4 percent in 2020 (2019 view 0.1 percentage point higher than April WEO).
  - Japan: 0.9 percent in 2019 (0.1 percentage point lower than April WEO); 0.4 percent in 2020.
- Emerging market and developing economies (group): 4.1 percent in 2019; 4.7 percent in 2020 (0.3 and 0.1 percentage point lower than April WEO).
  - Emerging and developing Asia: 6.2 percent in 2019–20 (0.1 percentage point lower than April WEO for both years).
    - China: 6.2 percent in 2019; 6.0 percent in 2020 (0.1 percentage point lower each year than April WEO).
    - India: 7.0 percent in 2019; 7.2 percent in 2020 (downward revision of 0.3 percentage point for both years).
  - Emerging and developing Europe: 1.0 percent in 2019 (0.2 percentage point higher than April WEO); 2.3 percent in 2020 (0.5 percentage point lower than April WEO).
  - Latin America: 0.6 percent in 2019 (0.8 percentage point lower than April WEO); 2.3 percent in 2020.
    - Venezuela: economy expected to shrink about 35 percent in 2019.
  - Middle East, North Africa, Afghanistan, and Pakistan: 1.0 percent in 2019; about 3.0 percent in 2020 (2019 forecast 0.5 percentage point lower than April WEO, largely due to Iran).
  - Sub-Saharan Africa: 3.4 percent in 2019; 3.6 percent in 2020 (0.1 percentage point lower for both years than April WEO).
  - Commonwealth of Independent States: 1.9 percent in 2019; 2.4 percent in 2020 (2019 down 0.3 percentage point, reflecting Russia).

### Downside risks (dominate outlook)
- Main downside risks:
  - Further trade and technology tensions that dent sentiment and slow investment.
  - A protracted increase in risk aversion exposing financial vulnerabilities built up after years of low interest rates.
  - Mounting disinflationary pressures that increase debt service difficulties, constrain monetary policy space, and make adverse shocks more persistent.
- Specific channels:
  - Disruptions to trade and tech supply chains from escalating tariffs, US actions relating to Chinese technology companies, or other trade measures could sap confidence, weaken investment, dislocate supply chains, and severely slow global growth below the baseline.
  - Abrupt shifts in risk sentiment: increases in US-China tensions earlier in 2019 caused rapid deterioration in global risk appetite.

### Policy recommendations (multilateral and national)
- Multilateral priorities:
  - Reduce trade and technology tensions and expeditiously resolve uncertainty around trade agreements (including between the United Kingdom and the European Union and the free trade area encompassing Canada, Mexico, and the United States).
  - Countries should not use tariffs to target bilateral trade balances or as a substitute for dialogue to pressure others for reforms.
- Monetary and fiscal policy guidance:
  - With subdued final demand and muted inflation, accommodative monetary policy is appropriate in advanced economies and in emerging market and developing economies where expectations are anchored.
  - Fiscal policy should: balance smoothing demand as needed; protect the vulnerable; bolster growth potential with spending that supports structural reforms; and ensure sustainable public finances over the medium term.
  - If growth weakens relative to the baseline, macroeconomic policies will need to turn more accommodative, depending on country circumstances.
- Cross-economy priorities: enhance inclusion, strengthen resilience, and address constraints on potential output growth.

### Near-term risks, disinflation, climate, and country-level guidance
- Potential triggers for risk-off episodes:
  - further increases in trade tensions;
  - protracted fiscal policy uncertainty and worsening debt dynamics in some high-debt countries;
  - an intensification of stress in large emerging markets in difficult macroeconomic adjustment (such as Argentina and Turkey);
  - a sharper-than-expected slowdown in China.
- Disinflationary pressures:
  - Slower global growth and the drop in core inflation revive risks of disinflationary spirals.
  - Effects include increased debt service difficulties, weaker corporate investment, and constrained monetary policy space.
- Climate change and geopolitical risks:
  - Climate change poses an overarching threat to health, livelihoods, and global economic activity.
  - Rising geopolitical tensions in the Persian Gulf and civil strife raise risks of humanitarian costs, migration strains, and higher volatility in commodity markets.

### Country-group specific guidance
- Advanced economies:
  - With subdued demand and muted inflation, accommodative monetary policy remains appropriate.
  - Monetary accommodation can foster financial vulnerabilities; strengthen macroprudential policies and supervisory approaches.
  - Some countries need further bank balance sheet repair to mitigate sovereign-bank feedback loop risks.
  - Fiscal policy should smooth demand, protect the vulnerable, support structural reforms, and ensure medium-term fiscal sustainability.
  - If growth weakens more than envisaged, macroeconomic policies should turn more accommodative depending on circumstances.
- Emerging market and developing economies:
  - The recent softening of inflation gives central banks the option of becoming accommodative, especially where output is below potential and inflation expectations are anchored.
  - Fiscal policy should focus on containing debt while prioritizing needed infrastructure and social spending over recurrent expenditure and poorly targeted subsidies.
  - Prioritization is particularly important in low-income developing economies to advance toward the United Nations Sustainable Development Goals.
  - Macroprudential policies should ensure adequate capital and liquidity buffers.
  - Efforts to minimize balance sheet currency and maturity mismatches remain vital.

### Key observed market developments and selected statistics
- World Output projection for 2019: 3.2 percent.
- As of mid-July, 10-year government bond yields:
  - United States: dropped by about 45 basis points since March, to 2.10 percent.
  - Germany: dropped by about 30 basis points since March, to –0.25 percent.
  - Japan: dropped by about 10 basis points since March, to –0.12 percent.
- Oil prices:
  - Average price of oil in US dollars a barrel was $68.33 in 2018.
  - Assumed price, based on futures markets (as of May 28, 2019): $65.52 in 2019 and $63.88 in 2020.
- Global financial conditions have eased further since the April 2019 World Economic Outlook; easing particularly pronounced in the United States and the euro area, while little changed on net in China and other major emerging market economies, in aggregate.

*Source: weoupdateengjuly2019 - Section 2.*

### Section 1

### Still Sluggish Global Growth

### Overview
- Global growth remains subdued amid intensified US-China tariffs, threats to technology supply chains, Brexit-related uncertainty, and rising geopolitical tensions affecting energy prices.
- Global growth forecast: 3.2 percent in 2019, picking up to 3.5 percent in 2020 (0.1 percentage point lower than in the April WEO projections for both years).
- Recent GDP releases and generally softening inflation point to weaker-than-anticipated global activity, with subdued investment and demand for consumer durables across advanced and emerging market economies.
- The projected 2020 pickup is precarious and presumes stabilization in stressed emerging market and developing economies and progress toward resolving trade policy differences.
- About 70 percent of the increase in the global growth forecast for 2020 relative to 2019 is accounted for by projected stabilization or recovery in stressed economies.

### Subdued momentum — Weak final demand
- Momentum in global activity remained soft in the first half of 2019, with positive surprises in some advanced economies but weaker-than-expected activity in emerging market and developing economies.
- Sectoral observations:
  - Service sector activity has held up.
  - Global manufacturing slowdown that began in early 2018 continued, reflecting weak business spending (machinery and equipment) and consumer purchases of durable goods.
- Inventory accumulation and soft imports have distorted GDP readings in some countries (lifting US and UK GDP in Q1; boosting output in China and Japan).
- Firms and households are holding back long-range spending amid elevated policy uncertainty.

### Subdued momentum — Soft global trade
- Trade volume growth declined to around ½ percent year-on-year in Q1 2019 after dropping below 2 percent in Q4 2018.
- The slowdown was particularly notable in emerging Asia.
- Weak trade prospects, reflecting trade tensions, create headwinds for investment; business sentiment and purchasing managers’ surveys point to a weak outlook for manufacturing and trade, especially new orders.
- The service sector’s relative resilience has supported employment growth and consumer confidence.

### Subdued momentum — Muted inflation
- Core inflation across advanced economies has softened below target (example: United States) or remained well below it (euro area, Japan).
- Core inflation has dropped further below historical averages in many emerging market and developing economies, except a few cases such as Argentina, Turkey, and Venezuela.
- Supply influences, notably oil price movements (affected by civil strife in Venezuela and Libya and US sanctions on Iran), have dominated commodity price changes.
- Despite oil price run-up through April and higher import tariffs in some countries, cost pressures have been muted due to still-tepid wage growth; headline inflation has remained subdued across most economies.
- Market pricing of expected inflation has dropped sharply in the United States and the euro area.

### Subdued momentum — Mixed policy cues and shifts in risk appetite
- Policy actions and missteps have materially affected market sentiment and business confidence.
- Risk sentiment regained some ground in June, supported by central bank communications signaling likely further accommodation and by the June G20 summit agreement to resume US-China trade talks.
- Financial conditions in the United States and the euro area are easier than at the time of the April WEO; conditions remained broadly unchanged for other regions.

### Global growth projections (selected figures)
- Global: 3.2 percent in 2019; 3.5 percent in 2020 (both 0.1 percentage point lower than April WEO).
- Forecast incorporates May 2019 US tariff increase on $200 billion of Chinese exports from 10 percent to 25 percent, and Chinese retaliation.
- Advanced economies: 1.9 percent in 2019; 1.7 percent in 2020.
  - United States: 2.6 percent in 2019 (0.3 percentage point higher than April WEO); 1.9 percent in 2020.
  - Euro area: 1.3 percent in 2019; 1.6 percent in 2020 (0.1 percentage point higher than April WEO).
    - Germany: 2019 forecast revised down slightly due to weaker-than-expected external demand.
    - France: 2019 forecast unchanged.
    - Italy: 2019 forecast unchanged.
    - Spain: 2019 forecast revised up.
  - United Kingdom: 1.3 percent in 2019; 1.4 percent in 2020 (2019 view 0.1 percentage point higher than April WEO).
  - Japan: 0.9 percent in 2019 (0.1 percentage point lower than April WEO); 0.4 percent in 2020.
- Emerging market and developing economies (group): 4.1 percent in 2019; 4.7 percent in 2020 (0.3 and 0.1 percentage point lower than April WEO).
  - Emerging and developing Asia: 6.2 percent in 2019–20 (0.1 percentage point lower than April WEO for both years).
    - China: 6.2 percent in 2019; 6.0 percent in 2020 (0.1 percentage point lower each year than April WEO).
    - India: 7.0 percent in 2019; 7.2 percent in 2020 (downward revision of 0.3 percentage point for both years).
  - Emerging and developing Europe: 1.0 percent in 2019 (0.2 percentage point higher than April WEO); 2.3 percent in 2020 (0.5 percentage point lower than April WEO).
  - Latin America: 0.6 percent in 2019 (0.8 percentage point lower than April WEO); 2.3 percent in 2020.
    - Venezuela: economy expected to shrink about 35 percent in 2019.
  - Middle East, North Africa, Afghanistan, and Pakistan: 1.0 percent in 2019; about 3.0 percent in 2020 (2019 forecast 0.5 percentage point lower than April WEO, largely due to Iran).
  - Sub-Saharan Africa: 3.4 percent in 2019; 3.6 percent in 2020 (0.1 percentage point lower for both years than April WEO).
  - Commonwealth of Independent States: 1.9 percent in 2019; 2.4 percent in 2020 (2019 down 0.3 percentage point, reflecting Russia).

### Downside risks (dominate outlook)
- Main downside risks include:
  - Further trade and technology tensions that dent sentiment and slow investment.
  - A protracted increase in risk aversion exposing financial vulnerabilities built up after years of low interest rates.
  - Mounting disinflationary pressures that increase debt service difficulties, constrain monetary policy space, and make adverse shocks more persistent.
- Specific risk channels:
  - Disruptions to trade and tech supply chains from escalating tariffs, US actions relating to Chinese technology companies, or other trade measures could sap confidence, weaken investment, dislocate supply chains, and severely slow global growth below the baseline.
  - Abrupt shifts in risk sentiment: increases in US-China tensions earlier in 2019 caused rapid deterioration in global risk appetite.

### Policy recommendations
- Multilateral and national policy actions are vital to strengthen global growth; pressing needs include:
  - Reducing trade and technology tensions and expeditiously resolving uncertainty around trade agreements (including between the United Kingdom and the European Union and the free trade area encompassing Canada, Mexico, and the United States).
  - Specifically: countries should not use tariffs to target bilateral trade balances or as a substitute for dialogue to pressure others for reforms.
- With subdued final demand and muted inflation:
  - Accommodative monetary policy is appropriate in advanced economies and in emerging market and developing economies where expectations are anchored.
  - Fiscal policy should balance smoothing demand as needed, protecting the vulnerable, bolstering growth potential with spending that supports structural reforms, and ensuring sustainable public finances over the medium term.
- If growth weakens relative to the baseline, macroeconomic policies will need to turn more accommodative, depending on country circumstances.
- Cross-economy priorities: enhance inclusion, strengthen resilience, and address constraints on potential output growth.

*WEO Update, July 2019 — Section 1*

### Section 2

### weoupdateengjuly2019 - Section 2

### Near-term risks to the global outlook
- Potential triggers for risk-off episodes include:
  - further increases in trade tensions;
  - protracted fiscal policy uncertainty and worsening debt dynamics in some high-debt countries;
  - an intensification of stress in large emerging markets currently in the midst of difficult macroeconomic adjustment processes (such as in Argentina and Turkey);
  - a sharper-than-expected slowdown in China, which is dealing with multiple growth pressures from trade tensions and needed domestic regulatory strengthening.
- A risk-off episode could expose financial vulnerabilities accumulated during years of low interest rates as highly leveraged borrowers find it difficult to roll over their debt and as capital flows retrench from emerging market and frontier economies.

### Disinflationary pressures
- Concerns about disinflationary spirals eased during the cyclical upswing of mid-2016 to mid-2018, but slower global growth and the drop in core inflation across advanced and emerging market economies have revived the risk.
- Effects of lower inflation and entrenched lower inflation expectations:
  - increase debt service difficulties for borrowers;
  - weigh on corporate investment spending;
  - constrain monetary policy space central banks have to counter downturns, meaning that growth could be persistently lower for any given adverse shock.

### Climate change, political risks, and conflict
- Climate change remains an overarching threat to health and livelihoods in many countries, as well as to global economic activity.
- Domestic policy mitigation strategies are failing to muster wide societal support in some countries; international cooperation is diluted by the non-participation of key countries.
- Rising geopolitical tensions in the Persian Gulf and civil strife in many countries raise risks of horrific humanitarian costs, migration strains in neighboring countries, and, together with geopolitical tensions, higher volatility in commodity markets.

### Policy priorities — multilateral
- Reduce trade and technology tensions.
- Expeditiously resolve uncertainty around changes to long-standing trade agreements (including those between the United Kingdom and the European Union as well as between Canada, Mexico, and the United States).
- Specific multilateral actions recommended:
  - Countries should not use tariffs to target bilateral trade balances.
  - Cooperatively address gaps in the rules-based multilateral trading system.
  - Ensure continued enforcement of existing World Trade Organization (WTO) rules through a well-functioning WTO dispute settlement system; resolve the deadlock over its appellate body.
  - Modernize WTO rules to encompass areas such as digital services, subsidies, and technology transfer; advance negotiations in new areas such as digital trade.
  - Enhance international cooperation on mitigating and adapting to climate change, addressing cross-border tax evasion and corruption, and avoiding a rollback of financial regulatory reforms.
  - Ensure multilateral institutions remain adequately resourced to counteract disruptive portfolio adjustments in a world economy heavily laden with debt.

### Policy priorities — national (shared across countries)
- Enhance inclusion.
- Strengthen resilience to turbulent turns in international financial markets.
- Address constraints that inhibit potential output growth (implement product and labor market reforms to boost productivity; raise labor force participation rates where relevant).

### Country-group specific guidance
- Advanced economies:
  - With subdued growth in final demand, muted inflation pressure, and dipped market-pricing-implied inflation expectations, accommodative monetary policy remains appropriate.
  - Monetary accommodation can foster financial vulnerabilities; stronger macroprudential policies and a more proactive supervisory approach are essential.
  - Some countries need further bank balance sheet repair to mitigate sovereign-bank feedback loop risks.
  - Fiscal policy should balance smoothing demand, protecting the vulnerable, bolstering growth potential with spending that supports structural reforms, and ensuring sustainable public finances over the medium term.
  - If growth weakens more than envisaged in the baseline, macroeconomic policies should turn more accommodative depending on country circumstances.
- Emerging market and developing economies:
  - The recent softening of inflation gives central banks the option of becoming accommodative, especially where output is below potential and inflation expectations are anchored.
  - Debt has increased rapidly across many economies; fiscal policy should focus on containing debt while prioritizing needed infrastructure and social spending over recurrent expenditure and poorly targeted subsidies.
  - This prioritization is particularly important in low-income developing economies to help them advance toward the United Nations Sustainable Development Goals.
  - Macroprudential policies should ensure adequate capital and liquidity buffers to guard against disruptive shifts in global portfolios.
  - Efforts to minimize balance sheet currency and maturity mismatches remain vital to preserve the buffering role of flexible exchange rates during risk-off shifts.

### Key observed market developments and selected statistics
- World Output projection for 2019: 3.2 percent.
- As of mid-July, 10-year government bond yields have dropped by about 45 basis points since March in the United States, to 2.10 percent; by about 30 basis points in Germany, to –0.25 percent; and by about 10 basis points in Japan, to –0.12 percent.
- The average price of oil in US dollars a barrel was $68.33 in 2018; the assumed price, based on futures markets (as of May 28, 2019), is $65.52 in 2019 and $63.88 in 2020.
- Global financial conditions have eased further since the April 2019 World Economic Outlook; the easing has been particularly pronounced in the United States and the euro area, while financial conditions are little changed on net in China and in other major emerging market economies, in aggregate.

*Source: weoupdateengjuly2019 - Section 2.*

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_Source: https://www.imf.org/-/media/files/publications/weo/2019/update/july/english/weoupdateengjuly2019.pdf_