IMF Cuts Global Growth Forecast Due to an Economic Uncertainty

The International Monetary Fund or IMF has downgraded the forecast of economic growth in 2020 to 3.3% growth dropped from a prior prediction of 3.4% in October. Pointed out Climate change as an important effect to the recovery of worldwide economy.

The recent World Economic Outlook stated that the trade war between China and the US was a major impact to global economy in 2019 and forced IMF to cut 0.1% in the estimated growth for 2019 to 2.9%         

The emerging market economies are also the main factor to downward worldwide recovery, particularly India, “where domestic demand has slowed more sharply than expected amid stress in the nonbank financial sector and a decline in credit growth,” said IMF

Apart from India, Mexico and South Africa are those countries that will suffer significantly from the uncertainty that dominated trading relationships in 2019.

IMF expects the world economy to recover this year, “market sentiment has been boosted by tentative signs that manufacturing activity and global trade are bottoming out, a broad-based shift toward accommodative monetary policy, intermittent favorable news on US-China trade negotiations, and diminished fears of a no-deal Brexit, leading to some retreat from the risk-off environment that had set in at the time of the October WEO. However, few signs of turning points are yet visible in global macroeconomic data.”

“The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels,” Gita Gopinath, the IMF’s chief economist, said in a written statement.

The Fund noted that some of the biggest economic uncertainties, highlighted in October, have expended. “Some risks have partially receded with the announcement of a U.S.-China Phase I trade deal and lower likelihood of a no-deal Brexit,” Gopinath said.

The IMF cautions about the state of the global economy notably further trade tensions. “New trade tensions could emerge between the United States and the European Union, and U.S.-China trade tensions could return,” said Gopinath.

Gopinath added on trade tensions “alongside rising geopolitical risks and intensifying social unrest could reverse easy financing conditions, expose financial vulnerabilities, and severely disrupt growth,”

“While there are signs of stabilization, the global outlook remains sluggish and there are no clear signs of a turning point. There is simply no room for complacency, and the world needs stronger multilateral cooperation and national-level policies to support a sustained recovery that benefits all,” she concluded.

Even the predicted growth rate is positive, but still lower than before the financial crisis in 2006, which the world economy grew by 3.8% and the expanding rate was 5.5%.

Moreover, the IMF has warned that the world economy is also encountering the risk of climate change, “the driver of the increased frequency and intensity of weather-related disasters, already endangers health and economic outcomes, and not only in the directly affected regions”