The IMF’s latest economic growth data reveals the depths of trade woes
The International Monetary Fund’s release of full-year economic data for 2019 makes uncomfortable reading.
Its latest World Economic Output (WEO) estimates put world gross domestic product growth at 2.9% last year – the weakest performance since the contraction in 2009 when the global financial crisis was at its worst. It’s a far cry from the heady 3.8% pace of growth recorded from 2010 to 2018 as the economy recovered from the crisis.
Since 1980, world GDP growth has averaged 3.5%; at 0.6 percentage points less, 2019’s 2.9% growth is uncomfortably close to the widely accepted global recession level of approximately 2.5%.
These figures reveal how fragile the global economy is.
For trade, the IMF estimates that global growth was just 1% last year, its seventh consecutive downward revision. This marks the weakest trade performance since the record 10.4% decline in 2009.
While the IMF uses the conciliatory phrase “bottoming out” in its discussion of trade growth decline, there’s no disguising the fact that the 1% growth figure is the fourth-weakest since 1980, and the three other years – 1982, 2001 and 2009 – were all associated with global recessions.
The IMF’s chief economist Gita Gopinath says there are “preliminary signs that the decline in manufacturing and trade may be bottoming out”. She attributes this to an improvement in the auto sector as disruptions from new emission standards start to fade coupled with the hoped-for success of the US-China Phase I trade deal.
If, and the latter is certainly a big if, these two stimuli succeed, world trade volume growth is expected to recover to 2.9% this year and 3.7% in 2021. However, these are both downward revisions – by -0.3 and -0.1 respectively – from the IMF’s previous quarterly forecast.
Ups and downs
For world output, the IMF projects growth to increase modestly from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. The slight downward revision of 0.1 percent for 2019 and 2020, and 0.2 percent for 2021, is owed largely to downward revisions for India. But even the IMF acknowledges that the projected recovery for global growth “remains uncertain”. Says Ms Gopinath: “It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilises at close to current levels.”
The forecast comes with a further health warning. Global monetary easing policies helped growth to rebound slightly in 2019 over 2018, albeit to a lower level than previously forecast. That growth would have been 0.5 percentage point lower without last year’s policy rate cuts in advanced and emerging-market economies – the most seen since the 2008 global financial crisis.
“That is a powerful outcome in the face of heightened downside risks,” said Tobias Adrian, director of the IMF’s monetary and capital markets department, and Fabio Natalucci, his deputy. However, they noted that further easing “may amplify the adverse impact of shocks to the global economy”.
Other downside risks “remain prominent”, said the IMF, including rising geopolitical tensions – notably between the US and Iran, intensifying social unrest, further worsening of relations between the US and its trading partners, and deepening economic frictions between other countries.
“A materialisation of these risks could lead to rapidly deteriorating sentiment, causing global growth to fall below the projected baseline,” said the IMF. The growth profile also relies on relatively healthy emerging market economies maintaining their robust performance even as advanced economies and China continue to slow gradually.
Across advanced economies, the IMF projects growth to stabilise at 1.6% in 2020-2021. This is 0.1 percentage point lower than in the October WEO for 2020, mostly due to downward revisions for the US, euro area and the UK, and downgrades to other advanced economies in Asia, notably Hong Kong following protests.
For the emerging market and developing economy group, growth is expected to increase to 4.4% in 2020 and 4.6% in 2021 (0.2 percentage point lower for both years than in the October WEO) from an estimated 3.7 percent in 2019. “The growth profile for the group reflects a combination of projected recovery from deep downturns for stressed and underperforming emerging market economies and an ongoing structural slowdown in China,” said the IMF.
Growth in the Middle East and Central Asia region is expected at 2.8% in 2020 (0.1 percentage point lower than in the October WEO), strengthening to 3.2% in 2021. “The downgrade for 2020 mostly reflects a downward revision to Saudi Arabia’s projection on expected weaker oil output growth following the OPEC+ decision in December to extend supply cuts,” said the IMF.
The IMF also throws a spotlight on poor cross-border co-operation, stating that closer multilateral co-operation is needed on “multiple fronts” to address grievances with the rules-based trading system, curb greenhouse gas emissions, and strengthen the international tax architecture.
Of particular concern is the impasse over the World Trade Organization’s Appellate Body. Countries are urged to address their trading grievances with the rules-based trading system and settle disagreements without raising tariffs and non-tariff barriers.
Moreover, stronger co-operation would boost inclusiveness and resilience which in turn will help reduce cross-border tax evasion and corruption, avoid a rollback of global financial regulatory reforms, and ensure an adequately resourced global financial safety net, said the IMF.