WASHINGTON: The International Monetary Fund cut its global growth forecasts for 2020 on Monday due to an unexpectedly sharp slowdown in India and other emerging markets, but said a U.S.-China trade deal was another sign that trade and manufacturing activity would soon bottom out could achieve.
The IMF said global growth will reach 3.3% in 2020, compared to 2.9% in 2019, the slowest pace since the financial crisis a decade ago. The estimates for both years were reduced by 0.1 percentage points compared to the forecasts made in October. Growth will improve slightly to 3.4% by 2021, but this estimate was also reduced by 0.2 percentage points compared to October, the Washington-based international crisis provider said.
The declines reflect the IMF's reassessment of economic prospects for a number of key emerging economies, particularly India, where domestic demand has slowed more than expected as lending and stress in the non-banking sector have decreased. The IMF also said it had lowered growth forecasts for Chile due to social unrest and for Mexico due to continued weak investment.
The fund said that easing tensions between the US and China, which had slowed GDP growth in 2019, had boosted sentiment as "tentative" signs of trade and industry bottomed out.
"These first signs of stabilization could continue and ultimately strengthen the link between persistent consumer spending and improved business spending," said the IMF. The fund has identified uncertainty about tariffs and their negative impact on corporate investment as the biggest factor limiting growth. "However, there are few signs of turning points in global macro data," added the fund.
BOOST FOR CHINA, NOT USA
The fund's cautious outlook assumes that trade tensions between the United States and China will no longer increase and that the United Kingdom will exit the European Union properly at the end of January.
The IMF raised China's growth forecast for 2020 by 0.2 percentage points to 6.0%, as the US trade agreement included a partial tariff cut and tariff cancellations for Chinese consumer goods planned for December. These tariffs were included in the IMF's earlier forecasts. However, the fund has not boosted its US growth forecast for China's pledges to increase US $ 200 billion in purchases of US goods and services over two years.
Instead, the IMF announced that U.S. growth in 2020 would be 0.1 percentage points below the 2.0% forecast in October as the impact of the 2017 tax cut and the Federal Reserve's monetary easing eased.
Growth in the eurozone declined by 0.1 percentage points to 1.3% between October and 2020, mainly due to a decline in manufacturing in Germany and a slowdown in domestic demand in Spain.
In India, the growth forecast for 2020 was significantly reduced by 1.2 percentage points to 5.8%. This is the IMF's largest haircut for all emerging markets due to the domestic credit crunch. Monetary and fiscal stimuli are expected to increase India's growth rate to 6.5% by 2021, although this is still 0.9 percentage points less than forecast in October.
Other emerging markets, including Chile, which have been hit by social unrest, have seen forecasts downgraded, according to the IMF. Mexico will only grow by 1.0% in 2020, after 1.3% in October. Although the downside risks had diminished as a result of the US-China trade agreement, the IMF said they were still significant.
"Increasing geopolitical tensions, particularly between the United States and Iran, could disrupt global oil supplies, affect sentiment, and weaken a tentative corporate investment," said the IMF. "In addition, worsening social unrest in many countries, which in some cases affects declining trust in established institutions and lack of representation in governance structures, could disrupt activity, complicate reform efforts, and weaken mood and growth among Press forecast. "