World Economic Outlook: International Monetary Fund Revises 2020, 2021 Growth Projections

The International Monetary Fund on Monday said the world economy appears to be stabilizing and projected global growth will rise to 3.3% in 2020 and tick up to 3.4% in 2021, revising the estimates it issued in October downward.

The IMF’s World Economic Outlook blamed the negative effects of surprises, especially on India’s economy, and social unrest for the revisions.

The report comes just one day ahead of the Davos Economic Forum, which is holding its 50th annual gathering examining world economic issues.

The October estimates put 2020 growth at 3.4% and 2021 growth at 3.6%. In 2019, global growth was estimated at 2.9%.

The report called for more cooperation among countries and a “more balanced policy mix at the national level, considering available monetary and fiscal space” but warned achieving the 2020 and 2021 targets is dependent on avoiding escalation of tensions between the U.S. and China, as well as the United Kingdom’s ability to reach a trade deal with the European Union.

“While there are signs of stabilization, the global outlook remains sluggish and there are no clear signs of a turning point,” Gita Gopinath, IMF economic counsellor and director of research, said in a blog post. “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.”

The report said manufacturing and trade were hit particularly hard in the last half of 2019 by uncertainty in trade policy, geopolitical tensions and idiosyncratic stress in emerging markets, along with weather-related disasters – hurricanes in the Caribbean, drought and bushfires in Australia, floods in eastern Africa and drought in southern Africa.

“Despite these headwinds, some indications emerged toward year-end that global growth may be bottoming out,” the report said. “Moreover, monetary policy easing continued into the second half of 2019 in several economies. Adding to the substantial support the easing provided earlier in 2019, its lagged effects should help global activity recover in early 2020.”

“Globally the big story is this extraordinary pivot by central banks in 2019,” BlackRock Vice Chairman Philip Hildebrand told Bloomberg Television. “What’s been holding this back or offsetting this is the trade risks, the geopolitical risks, so if we can pull back on those, we should see global growth edging up.”

Third quarter growth in India, Mexico and South Africa was weaker than expected while advanced economies exhibited softness.

“Despite continued job creation … core consumer price inflation remained muted across advanced economies. It softened further across most emerging market economies amid more subdued activity. Weak demand lowered metals and energy prices, which kept a lid on headline inflation,” the report said.

The report described economic stabilization as sluggish despite accommodative monetary policy and fiscal easing in a number of countries, including China, South Korea and the United States. It also noted business sentiment and the outlook of purchase managers in the manufacturing sector remained pessimistic.