## The Global Economy: A Delicate Moment

_IMF Blog, April 9, 2019_

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## Bibliographic details
- Authors: Gita Gopinath
- Published: April 9, 2019

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### Overview and recent drivers of slowdown
- One year ago economic activity was accelerating in almost all regions; by the second half of 2018 the global expansion significantly weakened.
- Contributing factors:
  - Escalation of US–China trade tensions
  - Needed credit tightening in China
  - Macroeconomic stress in Argentina and Turkey
  - Disruptions to the auto sector in Germany
  - Financial tightening alongside normalization of monetary policy in the larger advanced economies
- These developments contributed to a notably weaker global expansion, especially in the second half of 2018.

### Growth projections and key statistics
- The new World Economic Outlook (WEO) projects a slowdown in growth in 2019 for 70 percent of the world economy.
- Global growth:
  - 2018: 3.6 percent
  - 2019 (projected): 3.3 percent
  - Downward revision for 2019 from the January projection: 0.2 percentage points
- 2020 projection:
  - Global growth projected to return to 3.6 percent in 2020
  - Recovery in 2020 is predicated on a rebound in emerging market and developing economies
  - Emerging market and developing economies: 2019 projected growth 4.4 percent; 2020 projected growth 4.8 percent
- Beyond 2020:
  - Global growth expected to stabilize at around 3½ percent
  - Growth in emerging market and developing economies expected to stabilize at 5 percent
  - Low-income countries: varied outcomes with some commodity importers growing rapidly and others falling further behind in per capita terms
- Regional and group outlook notes:
  - Growth in advanced economies will slow slightly in 2020 despite a partial recovery in the euro area, reflecting fading US fiscal stimulus and modest potential growth due to aging trends and low productivity growth
  - The recovery is precarious and relies on expected rebounds in Argentina and Turkey and improvements in other stressed developing economies

### Policy responses and near-term financial conditions
- Monetary policy accommodation:
  - The US Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England shifted to a more accommodative stance.
- China policy response:
  - China has ramped up fiscal and monetary stimulus to counter the negative effect of trade tariffs.
- Trade outlook:
  - Prospects for a US–China trade agreement improved, helping overall outlook.
- Financial conditions and real economy divergence:
  - Policy responses have helped reverse tightening of financial conditions to varying degrees.
  - Emerging markets: some resumption in portfolio flows, a decline in sovereign borrowing costs, and strengthening of currencies relative to the US dollar.
  - Real economy indicators (industrial production and investment) remain weak in many advanced and emerging market economies; global trade has yet to recover.

### Risks to global growth
- The baseline does not anticipate a global recession, but many downside risks exist:
  - Trade policy tensions could flare up and spread to other areas (such as the auto industry), disrupting global supply chains.
  - Growth in systemic economies (for example the euro area and China) could surprise on the downside.
  - Heightened risks surrounding Brexit.
  - A deterioration in market sentiment could rapidly tighten financing conditions amid large private and public sector debt, including sovereign-bank doom loop risks.

### Policy recommendations and priorities
- Avoid costly policy mistakes; policymakers need to work cooperatively to reduce policy uncertainty and support investment.
- Fiscal policy:
  - Manage trade-offs between supporting demand, protecting social spending, and ensuring public debt remains on a sustainable path.
  - The optimal fiscal mix depends on country-specific circumstances.
- Financial sector policies:
  - Address vulnerabilities proactively using macroprudential tools (such as counter-cyclical capital buffers).
  - This is made more urgent by the possibility that interest rates will remain low for longer.
- Monetary policy:
  - Remain data dependent, be well communicated, and ensure inflation expectations remain anchored.
- Structural and multilateral priorities:
  - Actions to boost potential output, improve inclusiveness, and strengthen resilience across economies.
  - Greater multilateral cooperation needed to resolve trade conflicts, address climate change and cybersecurity risks, and improve effectiveness of international taxation.
- Contingent macro policy response if downside risks materialize:
  - Policymakers may need synchronized though country-specific fiscal stimulus across economies, complemented by accommodative monetary policy, depending on circumstances.
- Multilateral institutions:
  - Adequate resources for multilateral institutions remain essential to retain an effective global safety net to help stabilize the global economy.

*Source: Gita Gopinath, April 9, 2019*

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## References

- [عربي](https://www.imf.org/ar/News/Articles/2019/04/08/blog-the-global-economy-a-delicate-moment)
- [日本語](http://www.imf.org/ja/News/Articles/2019/04/08/blog-the-global-economy-a-delicate-moment)
- [Português](https://www.imf.org/pt/News/Articles/2019/04/08/blog-the-global-economy-a-delicate-moment)
- [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2019/03/28/world-economic-outlook-april-2019)
- [trade policy](https://blogs.imf.org/2019/04/03/economic-forces-not-tariffs-drive-changes-in-trade-balances/)
- [investment](https://blogs.imf.org/2019/04/03/why-investment-may-come-under-threat/)
- [public debt](https://blogs.imf.org/2019/01/18/three-steps-to-avert-a-debt-crisis/)
- [multilateral cooperation](https://blogs.imf.org/2018/09/06/steering-the-world-toward-more-cooperation-not-less/)
- [https://www.imf.org/wp-content/uploads/2019/04/WEO-042019.jpg](https://www.imf.org/wp-content/uploads/2019/04/WEO-042019.jpg)
- [How to Keep Corporate Power in Check](https://blogs.imf.org/2019/04/03/how-to-keep-corporate-power-in-check/)

_Source: https://www.imf.org/en/blogs/articles/2019/04/09/blog-the-global-economy-a-delicate-moment_