World Economic Outlook Update, January 2020: Tentative Stabilization, Sluggish Recovery?
World Economic Outlook, January 2020
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- Published: January 9, 2020
Overview and headline projection
- Global growth is projected to rise from an estimated 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent for 2021—a downward revision of 0.1 percentage point for 2019 and 2020 and 0.2 for 2021 compared to the October World Economic Outlook (WEO).
- The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, and in some cases the impact of increased social unrest.
- Monetary easing in 2019 is estimated to have raised the global growth estimate for 2019 and the projection for 2020 by 0.5 percentage point in each year relative to what they would have been without the stimulus.
Recent developments and implications for the forecast
- Key headwinds in H2 2019:
- Trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies—especially affecting manufacturing and trade.
- Intensifying social unrest in several countries.
- Weather-related disasters (hurricanes in the Caribbean; drought and bushfires in Australia; floods in eastern Africa; drought in southern Africa).
- Signs of tentative stabilization toward year-end 2019:
- Manufacturing activity and global trade appearing to bottom out; business sentiment and manufacturing PMIs ceased deteriorating though remained pessimistic.
- Service sector activity weakened somewhat but stayed expansionary, supported by still-resilient consumer spending.
- Broad-based shift toward accommodative monetary policy and some fiscal easing in China, Korea, and the United States.
- Financial and market signals:
- Central bank rate cuts and improved risk appetite supported equities and portfolio flows; core sovereign yields rose from September lows.
- Currency movements between September and early January: US dollar and Japanese yen weakened by about 2 percent; Chinese renminbi gained about 1½ percent; British pound appreciated 4 percent since September.
- Considerations shaping the forecast include: carryover from weaker-than-anticipated H2 2019 outturns in key emerging markets; tentative stabilization in manufacturing; accommodative financial conditions; and uncertainty over tariffs, social unrest, and geopolitical tensions.
Global growth outlook — key figures and regional breakdowns
- World Output (Year-over-Year): 2018 3.6; 2019 2.9; 2020 3.3; 2021 3.4. Difference from Oct 2019: –0.1 (2019), –0.2 (2021).
- Advanced Economies:
- Group projection: stabilize at 1.6 percent in 2020–21 (0.1 percentage point lower for 2020 than in the October WEO).
- United States: 2019 2.3 percent; 2020 2 percent; 2021 1.7 percent (0.1 percentage point lower for 2020 vs October WEO).
- Euro area: 2019 1.2 percent; 2020 1.3 percent (down 0.1 percentage point); 2021 1.4 percent.
- United Kingdom: expected to stabilize at 1.4 percent in 2020 and 1.5 percent in 2021—unchanged from October WEO (assumes orderly exit from the European Union at the end of January).
- Japan: 2019 1 percent (estimate); 2020 0.7 percent (0.1 and 0.2 percentage point higher than October WEO); 2021 0.5 percent.
- Emerging market and developing economies (group):
- 2019 3.7 percent; 2020 4.4 percent; 2021 4.6 percent (0.2 percentage point lower for both 2020 and 2021 vs October WEO).
- Emerging and Developing Asia:
- 2018 6.4; 2019 5.6; 2020 5.8; 2021 5.9.
- China: 2018 6.6; 2019 6.1; 2020 6.0; 2021 5.8. 2020 receives a 0.2 percentage point upgrade relative to October WEO due to envisaged partial rollback of past tariffs in a “Phase One” trade deal.
- India (fiscal year basis): 2019 4.8 percent (estimate); 2020 5.8 percent; 2021 6.5 percent (1.2 and 0.9 percentage point lower than in the October WEO for 2020 and 2021 respectively).
- ASEAN-5: slowed to 4.7 percent in 2019; projected to remain stable in 2020 and pick up in 2021; slight downward revisions for Indonesia and Thailand.
- Emerging and Developing Europe: 2019 1.8 percent; 2020–21 around 2.5 percent (0.1 percentage point higher for 2020 than October WEO).
- Latin America and the Caribbean: 2019 0.1 percent; 2020 1.6 percent; 2021 2.3 percent (0.2 and 0.1 percentage point weaker respectively than October WEO).
- Middle East and Central Asia: 2020 2.8 percent (0.1 percentage point lower than October WEO); 2021 3.2 percent.
- Sub-Saharan Africa: 2019 3.3 percent; 2020–21 3.5 percent (0.1 percentage point lower for 2020 and 0.2 percentage point weaker for 2021 vs October WEO).
- Memorandum and other key table figures:
- Low-Income Developing Countries: 5.0.
- World Growth Based on Market Exchange Rates: 3.0.
- World Trade Volume (goods and services): 4.2.
- Commodity prices (U.S. dollars): Oil 29.4 (2018); –11.3 (2019); –4.3 (2020); –4.7 (2021); assumed average price of oil: $60.62 in 2019; assumed price $58.03 in 2020; $55.31 in 2021.
- Nonfuel (average based on world commodity import weights): –0.7.
- Consumer Prices: Advanced Economies 3.8 (table header); specific CPI annual averages: United States 2.3 percent in 2020 and 2.4 percent in 2021; euro area 1.4 percent in 2020 and 2021; Japan 1.1 percent in 2020 and 1.2 percent in 2021.
- London Interbank Offered Rate lines included in table (percent) for U.S. dollar, euro, and Japanese yen deposits.
Risks to the outlook and scenario drivers
- Balance of risks remains on the downside but less skewed toward adverse outcomes than in October WEO.
- Upside scenario drivers:
- Persistence of tentative stabilization, interaction between resilient consumer spending and improved business spending.
- Fading idiosyncratic drags in key emerging markets plus effects of monetary easing.
- Improved sentiment following a “Phase One” US-China trade deal with partial rollback of tariffs.
- Downside risks (prominent):
- Rising geopolitical tensions (notably between the United States and Iran) that could disrupt oil supply and sentiment.
- Intensifying social unrest that could disrupt activity, complicate reforms, and weaken sentiment.
- Further deterioration in US relations with trading partners, or broader trade and technology frictions that could reverse the nascent bottoming out of manufacturing and trade.
- Rapid deterioration in financial sentiment leading to portfolio reallocations to safe assets, tightening financial conditions, and rising rollover risks for vulnerable corporate and sovereign borrowers.
- Weather-related disasters and climate change risks increasing frequency and intensity of shocks, with cross-border spillovers (including migration and insurance-sector stress).
Policy priorities and recommendations
- Overarching goals: build financial resilience, strengthen growth potential, and enhance inclusiveness.
- Multilateral cooperation:
- Address grievances with the rules-based trading system; resolve the WTO Appellate Body impasse; settle disagreements without raising tariffs and non-tariff barriers.
- Cooperate to curb cross-border cyberattacks, resolve intellectual property and technology transfer issues, and cooperate on curbing greenhouse gas emissions with appropriate burden-sharing.
- Enhance cross-border cooperation on reducing tax evasion and corruption, avoid rollback of global financial regulatory reforms, and ensure an adequately resourced global financial safety net.
- Advanced economies:
- Countries with fiscal space should increase spending on initiatives that raise productivity growth (research, training, physical infrastructure).
- High-debt countries should generally consolidate to prepare for the next downturn, except where private demand is very weak.
- With policy rates near the effective lower bound, countries with fiscal space and non-excessively expansionary fiscal policy can rely more on fiscal stimulus if needed; prepare contingent responses emphasizing investment in climate mitigation and areas that strengthen potential growth and inclusiveness.
- Strengthen macroprudential policies, supervision, and, where needed, bank-balance-sheet clean-up.
- Emerging market and developing economies:
- Economies in macroeconomic distress should continue adjustments to rebuild confidence while ensuring adequate safety nets.
- High-debt economies should aim for consolidation calibrated to avoid sharp slowdowns (improve subsidy targeting, broaden revenue base, strengthen compliance).
- Economies with more secure conditions but weakened activity can use monetary support where inflation declines and real rates remain high.
- Ensure financial resilience by maintaining capital and liquidity buffers while minimizing currency and maturity mismatches.
- Promote inclusive growth via spending on health and education and policies that incentivize entry of firms that create high value-added jobs.
Box 1 — Global financial conditions: still accommodative (key points)
- Global financial conditions remain accommodative by historical standards and are little changed since the October 2019 Global Financial Stability Report, with easing in some individual economies.
- Recent central bank actions cited:
- US Federal Reserve cut policy rate by 25 basis points.
- European Central Bank restarted net asset purchases at €20 billion per month.
- People’s Bank of China reduced its medium-term lending facility rate by 5 basis points.
- Turkey central bank cut its policy rate by 450 basis points.
- Russia and Brazil cut policy rates by 75 and 100 basis points, respectively.
- Market reaction to trade-related news has driven volatility; on net world equity markets rose by about 8 percent over the past three months and long-term yields in the euro area, Japan and United States increased by 15–30 basis points from very low levels.
- Financial conditions outcomes:
- US financial conditions: unchanged on net (higher equity valuations and tighter corporate spreads offset rise in long-term yields); overall level remains accommodative.
- Euro area: continued easing due to higher equity prices and tighter corporate bond spreads.
- China: conditions broadly unchanged though corporate valuations rose.
- Selected emerging market economies (Brazil, India, Mexico, Poland, Russia, Turkey): aggregate conditions eased further, with average sovereign spreads down by almost 25 basis points and corporate bond spreads tightening by a similar amount.
Source: World Economic Outlook Update, January 2020: Tentative Stabilization, Sluggish Recovery?
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