Transcript of October 2019 World Economic Outlook Press Briefing
IMF News, October 16, 2019
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- Published: October 16, 2019
Global growth outlook — current assessment and projections
- Global growth downgraded for 2019 to 3 percent, "its slowest pace since the global financial crisis."
- Modest recovery projected to 3.4 percent in 2020; this is "another downward revision of 0.2 percent from our April projections."
- Advanced economies
- Growth downgraded to 1.7 percent for 2019 and "expected to remain there into 2020."
- Emerging market and developing economies
- Revised down to 3.9 percent for 2019.
- Projected rebound to 4.6 percent in 2020; about half of this rebound reflects recoveries or shallower recessions in "stressed emerging markets, such as Argentina, Iran, and Turkey," and the remainder from recoveries in countries where growth slowed in 2019 relative to 2018, including Brazil, India, Mexico, Russia, and Saudi Arabia.
- Recovery characterized as "precarious" because roughly half of the projected pickup depends on recoveries in stressed emerging markets.
- Recession threshold guidance: "if global growth were to go below 2.5 percent, that is usually a scenario where there are several countries in a recession; but that is, however, not in our baseline."
Drivers of weakness and sectoral patterns
- Main sources of weakness:
- Rising trade barriers and growing geopolitical tensions.
- Sharp deterioration in manufacturing and global trade.
- Country‑specific factors in several emerging market and developing economies.
- Structural forces such as low productivity growth and ageing demographics in advanced economies.
- Trade and manufacturing specifics:
- Trade volume growth in the first half of 2019 fell to 1 percent, "the weakest level since 2012."
- Weakness driven by higher tariffs, prolonged trade policy uncertainty, and sectoral shocks (notably the automobile industry and the tech/semi‑conductor cycle).
- Services sector largely holding up and supporting labor markets, wage growth, and consumption in advanced economies, though "some initial signs of softening" in services in the United States and the euro area.
Quantified impacts of trade tensions and tariffs
- IMF estimate of U.S.–China trade tensions: cumulatively reduce the level of global GDP by 0.8 percent by 2020 (end 2020, as stated).
- Tariff removal scenarios on the October/December tariffs:
- If the October tariffs were never to happen: negative impact falls from 0.8 to 0.7.
- If the December tariffs were also never to happen: negative impact comes closer to 0.6 percent.
- If all tariffs put in place in 2018 and 2019 (including those announced) were removed, the level of global GDP would be boosted by 0.8 percent by the end of 2020.
- Trade volume projection: rebound to 3.2 percent (question referenced this projection; panelists cite drivers for pickup and base effects).
Monetary, fiscal, and macroprudential policy assessments
- Monetary policy
- Major central banks have "appropriately eased" given weakening activity and lack of inflationary pressures.
- IMF assessment: "in the absence of such monetary stimulus, global growth would be lower, by half a percent in both 2019 and 2020."
- Risks of prolonged very low or negative interest rates: buildup of fiscal risks, very high levels of corporate debt, search for yield leading to financial vulnerabilities.
- Fiscal policy
- "Monetary policy cannot be the only game in town." Fiscal support should be used where fiscal space is available and policy is not already too expansionary.
- Countries such as Germany and the Netherlands advised to "take advantage of low borrowing rates to invest in social and infrastructure capital."
- If growth deteriorates more severely, "an internationally coordinated fiscal response, tailored to country‑specific circumstances, may be required."
- Macroprudential policy
- Urged to be deployed to prevent mispricing of risk and excessive buildup of financial vulnerabilities while monetary easing persists.
- Structural reforms and governance
- Structural reforms to boost productivity, resilience, and lower inequality are essential; reforms are "always more effective when good governance is already in place."
Downside risks and geopolitical considerations
- Key downside risks:
- Heightened trade and geopolitical tensions (including Brexit‑related risks).
- Abrupt shifts in risk sentiment, financial disruptions, and reversal in capital flows to emerging markets.
- Low inflation becoming entrenched in advanced economies, constraining monetary policy space.
- Policy priorities to rejuvenate growth:
- Undo trade barriers via durable agreements, rein in geopolitical tensions, reduce domestic policy uncertainty.
- Preserve and strengthen the global trading system; emphasize multilateral cooperation on climate change, cybersecurity, tax avoidance/evasion, and financial technology.
Country and regional specifics — selected highlights
- United Kingdom / Brexit
- Baseline assumes an agreement and smooth transition.
- No‑deal Brexit scenario: reduce the level of UK GDP by about 3 percent over the long run and "between 3 to 5 percent, depending upon how disruptive the exit is, over a two‑year period."
- Nigeria
- Per capita growth "remains weak."
- Recommended measures: stronger non‑oil revenue mobilization, tight monetary policy, a simpler unified exchange rate system, removal of foreign exchange restrictions, continued banking sector resilience measures, structural reforms in infrastructure and power, and governance improvements.
- Brazil
- Recent growth: "growth of about 1 percent for two years, '17, '18; now, only 0.9."
- Recovery supported by easing monetary policy and low interest rates; progress on pension reform important; persistent policy uncertainty and high debt levels remain concerns.
- India
- Short‑term negative impact from nonbank financial sector vulnerabilities; projected recovery to 7 percent growth in 2020 assuming bottlenecks clear.
- Fiscal caution urged after corporate tax cuts; need to keep fiscal deficit in check.
- Pakistan
- Under IMF program with fiscal adjustment needs.
- Forecasts presented: 3.3 in 2019, 2.4 in 2020; pick up thereafter.
- Risks include oil prices; signs of confidence improving with demand for local currency assets and a more reflective exchange rate.
- Mexico
- Slower growth linked to policy uncertainty about the fate of structural reforms, tight monetary/financial conditions, under‑execution of the budget, and global manufacturing downturn.
- Hong Kong
- Significant revision down for growth in 2019; some recovery expected in 2020. Current slowdown driven by trade tensions, structural slowdown in China, and social unrest affecting tourism and retail; spillovers to global growth "remain quite small at this point."
- Saudi Arabia
- 2019 downgrade driven in part by weakness in the oil sector (lower oil production tied to new OPEC Plus rules).
- Non‑oil sector showing improvement, but geopolitical risks and global slowdown (impacting oil prices) are important downside risks.
Investment, FDI, and capital flows
- Noted sharp decline in foreign direct investment among major economies in the prior year, particularly between China and the United States.
- IMF assessment:
- Much of the large decline in reported FDI reflects restructuring of internal financial activities of multinationals and repatriation of cash linked to tax changes (with "virtually no impact on economic activity").
- Concern that increased fragmentation or trade tensions could reduce real greenfield FDI and M&A, potentially lowering productivity growth over time.
Sectoral and cyclical notes
- Automobile sector contractions due to emissions‑standard disruptions in the euro area and China contributed materially to manufacturing weakness.
- Tech/semi‑conductor cycle weakness contributed to export declines in East Asia.
- Base effects and projected stabilization in autos and semiconductors are cited as contributors to expected trade and investment pickup.
Summarized policy recommendations
- Roll back trade barriers and secure durable, comprehensive agreements to restore confidence and investment.
- Use fiscal support where space exists and policies are not overly expansionary, with international coordination if needed.
- Maintain monetary accommodation as appropriate but reinforce macroprudential measures to limit financial vulnerabilities.
- Accelerate structural reforms to boost productivity, resilience, and equity, supported by good governance.
- Prioritize both mitigation and adaptation for climate risks; Fiscal Monitor to provide detailed discussion of carbon pricing.
Transcript: October 15, 2019, World Economic Outlook press briefing — IMF Communications Department