IMF trims economic outlook, but tones down warnings

WASHINGTON • The International Monetary Fund (IMF) has predicted that the world economy will strengthen this year, albeit at a slightly weaker pace than previously anticipated amid threats related to trade and tensions in the Middle East.

Global growth will accelerate this year to 3.3 per cent from 2.9 per cent in 2019, it said on Monday. That is the first pickup in three years, but less than the 3.4 per cent projected in October. The 2019 estimate was reduced for a sixth time.

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

For 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.

It upgraded China's outlook on the back of the phase one trade deal with the US, but chief economist Gita Gopinath said the key thing is for both countries to push on and come up with a more durable pact.

"If these tensions return, that will undo all of the improvements in policy uncertainty that we've seen recently," she told Bloomberg Television. "It's a bit of a wait and watch."

The IMF also quantified the impact of central banks' efforts to shore up growth last year. It said expansion in 2019 and 2020 would be 0.5 percentage point weaker without their stimulus.

BlackRock vice-chairman Philipp Hildebrand described that effort as an "extraordinary pivot back to easier monetary policy" that will help growth edge up this year.

The big drag on the new IMF forecasts was India, where the 2020 outlook was slashed by more than a percentage point.

There were also modest downgrades to projections for the US and the euro area. The prediction for global trade volume growth was cut to 2.9 per cent from 3.2 per cent, though that would still be far better than last year's 1 per cent.

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.

While risks have eased, the IMF was clear that there is still plenty to worry about. Progress in trade talks is stop-start, simmering US-Iran tensions could hit oil supply, and there are also weather-related disasters and social unrest.

"The risk of protracted sub-par global growth remains tangible despite tentative signs of stabilising momentum," it said.

The IMF held or reduced its estimates for most of the world's biggest economies for 2020, with Japan a notable exception. It raised the outlook to 0.7 per cent from 0.5 per cent, reflecting the anticipated boost from stimulus measures undertaken in December.

It raised China's estimate by 0.2 percentage point to 6 per cent. The phase one trade deal is likely to alleviate near-term cyclical weakness, though unresolved disputes on US-China economic relations "will continue weighing on activity".

The 2020 estimate for the US was lowered by 0.1 percentage point to 2 per cent, and 2021 held at 1.7 per cent. India's downgrade was because domestic demand has slowed more sharply than expected, with a decline in credit growth.

Separately, a poll by PricewaterhouseCoopers shows the proportion of CEOs expecting global growth to slow in the coming year had risen tenfold since 2018.

BLOOMBERG