According to the most recent World Economic Outlook from the International Monetary Fund (IMF), global growth is now projected to slow to 3.3% in 2019, from 3.6% in 2018, before returning to 3.6% in 2020.
The report said that after strong growth in 2017 and early 2018, global economic activity slowed significantly in the second half of last year due to a convergence of factors affecting major economies.
“This is a delicate year for the global economy,” Gita Gopinath, the IMF’s chief economist, wrote in the foreword of the report. “If the downside risks do not materialize and the policy support put in place is effective, then global growth will return to 3.6%. If, however, any of the major risks materialize, then the expected recoveries in stressed economies, export-dependent economies, and highly indebted economies may not occur.”
The IMF said China’s growth declined as a result of regulatory tightening to rein in shadow banking, and an increase in trade tensions with the US. Meanwhile, the loss of momentum in the euro area economy was greater than expected as consumer and business confidence weakened and car production in Germany was disrupted by new emission standards; investment in Italy declined as sovereign spreads widened; and external demand softened, especially from emerging markets in Asia.
In light of these developments, growth for 2018 was revised downward by 0.1 percentage point relative to the October 2018 World Economic Outlook, reflecting weakness in the second half of the year, while the forecasts for 2019 and 2020 are now 0.4 percentage points and 0.1 percentage points lower, respectively.
The IMF’s current forecast expects global growth will level off in the first half of 2019, and pick up after that. However, the projected rebound in the second half of the year is contingent on an ongoing buildup of policy stimulus in China, recent improvements in global financial market sentiment, the reduction of some temporary drags on euro area growth, and the stabilization of conditions in stressed emerging market economies, such as Argentina and Turkey.
The report said that improved momentum for emerging market and developing economies is projected to continue into 2020, primarily due to developments in economies currently experiencing macroeconomic distress. However, activity in advanced economies is projected to continue to gradually slow as the impact of US fiscal stimulus fades.
Looking past 2020, the IMF said global growth is expected to plateau at about 3.6% over the medium term, sustained by the increase in the relative size of economies, such as those of China and India. Growth across emerging market and developing economies is projected to stabilize slightly below 5%, although this will vary by region and country.
“While the overall outlook remains benign, there are many downside risks,” said Gopinath, citing an “uneasy truce” on trade policy and large disruptions to global supply chains. “Growth in China may surprise on the downside, and the risks surrounding Brexit remain heightened.”