The Financial Express

Why IMF cuts global growth estimates  

Sarwar Md. Saifullah Khaled   | Published: January 27, 2020 22:03:25 | Updated: January 28, 2020 22:24:03

Why IMF cuts global growth estimates   

Omproving the United States (US) and China trade tensions has eased growth uncertainty and in the absence of that the world economy may have hit the bottom, the International Monetary Fund (IMF) said on January 20, 2020. Yet, a sharp slowdown in India is creating a drag worldwide. The global agency cautioned that outcomes depend to an important extent on avoiding further escalation of trade tension.

However, the risks to the global economy have lessened. The IMF, in the latest update, cut the global growth estimate by one-tenth for 2020, compared to the prior report released in October 2019, dropping it to 3.3 per cent. It has also lowered the 2021 forecast by a bit more to 3.4 per cent. The sharp drop for India accounts for the lion's share of the downward revisions.

The relationship between the world's two dominant economic powers - China and the US - is still troubled by unresolved disputes. Despite tentative signs of stability, the risk of protracted sub par global growth remains tangible. Policy missteps at this stage would further enfeeble an already weak global economy. US President Donald Trump signed a deal with China last week that ends the escalation. But he leaves in place tariffs on two thirds of the goods imported from China. The trade truce led to an upgrade of China's growth forecast to 6.0 per cent in 2020. But it is with a slight slowdown to 5.8 per cent projected for 2021. However, the giant Asian economy has been on a steadily slowing path for some time. With a repeat expected in 2021, the IMF has trimmed US growth just a tenth to 1.6 per cent in 2020.

Since 2018 the US and China have exchanged tit-for-tat tariffs on hundreds of billions of dollars in two-way trade. IMF chief Kristalina Georgieva said on January 18, 2020, that the two countries still have a long way to go to resolve their trade disputes. She said "Trade truce is not the same as trade peace". The IMF, in its previous analysis, had estimated that trade conflicts and tariffs cut off 0.8 percentage points of global growth. However, two thirds of that damage was not due to tariffs, but due to trade uncertainty created by the conflict since that causes companies to put the brakes on investment.

But if tensions flare up again, or should Trump's trade dispute with the European Union (EU) or confrontation with Iran worsen, that could undermine the "nascent bottoming out of global manufacturing and trade, leading global growth to fall short" of forecasts.

Receding risks of a hard Brexit have helped stabilise the outlook for Britain and the EU; and healthy private consumption have helped the still-slow but upgraded growth prospects in Japan. Meanwhile, Latin American countries continue to slow. Still Brazil has stabilised and growth there was upgraded. Mexico was downgraded while amid widespread social unrest, Chile suffered "a sizable markdown".

On the South Asian front, the IMF, however, once again cut expected gross domestic product (GDP) growth in India by 1.2 points in 2020 and 0.9 percentage points in 2021 compared to the October 2019 forecasts. It is not enough to continue to reduce poverty in the growing Indian economy, even though growth remains relatively robust at 5.8 and 6.5 percent for the two years respectively.

That nation has been one of the fastest growing in the world now. Together with China, it is a major engine of global expansion, while advanced economies have bumped along at far slower rates.

The IMF has also projected that Bangladesh GDP will face slower growth of 7.0 per cent both in 2020 and 2021; while in the first quarter of 2019 Bangladesh's was the world's seventh fastest growing economy with a rate of 7.3 per cent real GDP annual growth.


Sarwar Md. Saifullah Khaled is is a retired Professor of Economics and Vice Principal at Cumilla Women's Government College, Cumilla.



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