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21 January 2020

IMF revises global economic outlook, tones down risk warnings

While risks have eased, the fund was clear that that there is still plenty to worry about

The sense that global growth is stabilising is shared by many economists as well as some central banks/Bloomberg

by Bloomberg

The International Monetary Fund (IMF) has projected that the world economy will strengthen in 2020, although at a slower pace than previously anticipated amid threats related to trade wars and geopolitical tensions in the Middle East.

In a report, the Washington-based fund stated that global growth will accelerate to 3.3 per cent from 2.9 per cent in 2019, marking the first pickup in three years. However, both figures are down compared with forecasts in October 2019 and mark the IMF’s sixth straight reduction for 2019.

The IMF report, however, contained some modest hope, noting that risks are less skewed toward negative outcomes. That outlook will be keenly discussed this week at the World Economic Forum’s annual meeting in Davos. The sense that global growth is stabilising is shared by many economists as well as some central banks.

According to the IMF, which sees growth accelerating to 3.4 per cent in 2021, the positives include signs that the slump in manufacturing and global trade is bottoming out, intermittent good news on US-China trade talks and accommodative monetary policy.

The fund upgraded China’s outlook on the back of the ‘Phase one’ deal with the US, but Chief Economist Gita Gopinath said that the key thing is for both countries to push on and come up with a more durable agreement.

“If these tensions return, that will undo all of the improvements in policy uncertainty that we’ve seen recently,” said Gopinath.

The IMF also quantified the impact of central banks’ efforts to shore up growth in 2019, adding that expansion in 2019 and 2020 would be 0.5 percentage point weaker without their stimulus.

There is also a clear impact from the US-China trade pact. According to the IMF, it reduces the cumulative negative effect on output from the battle through 2020 to 0.5 per cent from 0.8 per cent.

Progress in trade talks is stop-start, simmering US-Iran tensions could hit oil supply and there is also social unrest and weather-related disasters.

RELATED STORIES: International Monetary Fund Global Economic Outlook US-China trade deal US-Iran tensions





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