World Economic Outlook Update, July 2019: Still Sluggish Global Growth
World Economic Outlook, July 2019
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- Published: July 18, 2019
Overview
- Global growth is forecast at 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).
- GDP releases so far this year, together with generally softening inflation, point to weaker-than-anticipated global activity.
- Investment and demand for consumer durables have been subdued across advanced and emerging market economies, contributing to sluggish global trade.
- The projected growth pickup in 2020 is precarious and presumes stabilization in stressed emerging market and developing economies and progress toward resolving trade policy differences.
Subdued momentum: demand, trade, inflation, and policy cues
- Weak final demand
- Positive surprises to growth in some advanced economies (United States, Japan) contrasted with weaker-than-expected activity in emerging market and developing economies.
- Inventory accumulation of unsold goods lifted first quarter GDP in the United States and the United Kingdom; soft imports boosted output in China and Japan.
- Service sector activity held up, while global manufacturing slowdown continued, reflecting weak business spending (machinery and equipment) and consumer purchases of durable goods.
- Soft global trade
- Trade volume growth declined to around ½ percent year-on-year in the first quarter of 2019 after dropping below 2 percent in the fourth quarter of 2018.
- Slow trade, particularly in emerging Asia, creates headwinds for investment; purchasing managers’ surveys point to weak outlook for manufacturing and new orders.
- Muted inflation
- Core inflation across advanced economies has softened below target (for example in the 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.
- Headline inflation has remained subdued across most advanced and emerging market economies despite oil price influences.
- Mixed policy cues and shifts in risk appetite
- Risk sentiment improved in June after central bank signals of likely further accommodation and 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; broadly unchanged for other regions.
Global forecast and regional projections
- Global
- World output: 3.2 percent in 2019; 3.5 percent in 2020; difference from April 2019 WEO Projections: –0.1.
- The forecast reflects the May 2019 increase of US tariffs on $200 billion of Chinese exports from 10 percent to 25 percent, and retaliation by China.
- 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.
- Advanced economies
- Projected growth: 1.9 percent in 2019 and 1.7 percent in 2020 (0.1 percentage point higher in 2019 than in April).
- United States: 2.6 percent in 2019 (0.3 percentage point higher than in the April WEO), moderating to 1.9 percent in 2020.
- Euro area: 1.3 percent in 2019 and 1.6 percent in 2020 (0.1 percentage point higher than in April).
- United Kingdom: 1.3 percent in 2019 and 1.4 percent in 2020 (0.1 percentage point higher in 2019 than forecast in April).
- Japan: 0.9 percent in 2019 (0.1 percentage point lower than in April), 0.4 percent in 2020.
- Emerging market and developing economies (aggregate)
- Projected growth: 4.1 percent in 2019, rising to 4.7 percent in 2020; forecasts are 0.3 and 0.1 percentage point lower, respectively, than in April.
- Regional highlights
- Emerging and Developing Asia: 6.2 percent in 2019–20 (0.1 percentage point lower than in April for both years).
- China: 6.2 percent in 2019 and 6.0 percent in 2020 (0.1 percentage point lower each year relative to April).
- 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), 2.3 percent in 2020 (0.5 percentage point lower than April).
- Latin America and the Caribbean: 0.6 percent in 2019 (0.8 percentage point lower than April), 2.3 percent in 2020.
- Brazil and Mexico downgraded notably; Argentina’s 2019 contraction moderated but recovery in 2020 is more modest.
- 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, largely due to Iran).
- Sub-Saharan Africa: 3.4 percent in 2019 and 3.6 percent in 2020 (0.1 percentage point lower for both years than April).
- Commonwealth of Independent States: 1.9 percent in 2019, 2.4 percent in 2020 (2019 growth revised down 0.3 percentage point reflecting Russia).
- Memorandum items from Table 1 (selected)
- World Trade Volume (goods and services): quoted as an indicator in the table (see original for full series).
- Commodity Prices (US dollars): Oil average price was $68.33 in 2018; assumed price based on futures markets (as of May 28, 2019) is $65.52 in 2019 and $63.88 in 2020.
- As of mid-July, 10-year government bond yields 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.
Downside risks (dominant)
- Escalating trade and technology tensions that dent sentiment and slow investment; potential for US-China tariffs, US auto tariffs, or a no-deal Brexit to dislocate supply chains.
- Abrupt shifts in risk sentiment: a protracted risk-off episode could expose financial vulnerabilities accumulated after years of low interest rates, making highly leveraged borrowers difficult to roll over debt and causing capital flow retrenchment from emerging markets.
- Disinflationary pressures: lower inflation and entrenched lower inflation expectations increase debt service difficulties, weigh on corporate investment, and constrain monetary policy space.
- Climate change, political risks, conflict: overarching threats to health, livelihoods, and global activity; civil strife and geopolitical tensions raise humanitarian costs, migration strains, and commodity volatility.
Policy priorities and recommendations
- Multilateral actions
- Reduce trade and technology tensions and expeditiously resolve uncertainty around trade agreements (including UK-EU 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.
- Strengthen the rules-based multilateral trading system: ensure enforcement of existing WTO rules, resolve deadlock over its appellate body, modernize WTO rules (digital services, subsidies, technology transfer), and 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 rollback of financial regulatory reforms.
- Ensure multilateral institutions are adequately resourced to counteract disruptive portfolio adjustments in a highly indebted world economy.
- National-level priorities (by country group)
- Advanced economies
- With subdued final demand and muted inflation, accommodative monetary policy remains appropriate.
- Strengthen macroprudential policies and supervisory approaches to curb financial vulnerabilities induced by monetary accommodation.
- Fiscal policy should smooth demand, protect the vulnerable, bolster growth potential with structural reform–supporting spending, and ensure sustainable public finances over the medium term.
- If growth weakens relative to baseline, macroeconomic policies should turn more accommodative depending on country circumstances.
- Emerging market and developing economies
- Central banks can consider becoming accommodative where output is below potential and inflation expectations are anchored.
- Fiscal policy should focus on containing debt while prioritizing infrastructure and social spending over recurrent expenditure and poorly targeted subsidies—especially important for low-income developing countries.
- Macroprudential policies should ensure adequate capital and liquidity buffers; minimize balance sheet currency and maturity mismatches; and preserve the buffering role of flexible exchange rates.
Source: World Economic Outlook Update, July 2019.
Content in this bundle
- IMF World Economic Outlook Update, July 2019; Still Sluggish Global Growth; July 23, 2019