IMF again lowers world economic expectations for global financial conditions

In the latest World Economic Outlook Report (WEO) issued by the International Monetary Fund (IMF) on July 23, the world economic growth expectations for 2019 and 2020 were revised down again. It is estimated that the global economic growth will be 3.2% in 2019 and 3.5% in 2020, which is 0.1 percentage points lower than the WEO forecast in April for this year and next two years.

For developed economies, the IMF expects growth of 1.9% and 1.7% in 2019 and 2020, respectively, and the growth forecast for 2019 is 0.1 percentage point higher than that for April this year. For emerging and developing economies, the IMF expects growth of 4.1% in 2019 and 4.7% in 2020. Compared with April, they were reduced by 0.3 percentage points and 0.1 percentage points respectively. The IMF expects China to grow by 6.2% in 2019 and 6.0% in 2020, respectively.

Upgraded Growth Expectations of Developed Economies and the United States and Europe in 2019

The reason for downgrading Economic Growth Expectations again, the IMF said, was that global economic growth remained sluggish. "The GDP data released so far and the overall downward inflation situation show that global economic activity is weaker than expected." The IMF said.

However, WEO raised the economic growth expectation of developed economies by 0.1 percentage point to 1.9% in 2019, and maintained the expected growth rate of 1.7% in 2020. According to the IMF, the increase in growth expectations for 2019 mainly reflects an increase in U.S. growth.

Specifically, the IMF raised its growth expectation of the United States by 0.3 percentage points to 2.6% in 2019, and with the withdrawal of fiscal stimulus, the growth rate of the United States is expected to slow to 1.9% in 2020. "The growth adjustment of the United States in 2019 reflects its better-than-expected economic performance in the first quarter." However, the IMF also admitted that although overall U.S. growth remained strong supported by robust export and inventory accumulation, domestic demand was slightly weaker than expected and imports were weaker, partly reflecting the impact of tariffs. In the WEO of January and April this year, the IMF drastically reduced the growth expectations of the euro zone twice in succession, and attributed the decline in the overall growth expectations of the developed economies in the WEO of April to the weakness of the euro zone economy. The IMF raised its growth expectations for the euro area by 0.1 percentage points to 1.3% in 2019 and 1.6% in 2020, respectively. In response, the IMF explained that external demand in the euro area is expected to pick up and temporary factors such as fewer car registrations in Germany and street demonstrations in France will continue to fade.

but it still slightly lowered its growth forecast for Germany, the locomotive of the European economy, in 2019, saying that "German external demand is weaker than expected, which is a drag on investment". In addition, economic forecasts for France and Italy remain unchanged. The IMF pointed out that French fiscal measures would support growth and that the negative impact of street demonstrations was fading. Italy's uncertain fiscal outlook was similar to that of April this year and continued to curb investment and domestic demand. The European Economic Forecast for Summer 2019 issued by the European Commission in July is more pessimistic than the IMF. It is expected that the economic growth rates of the EU and the Eurozone will be only 1.2% and 1.4% respectively in 2019, far from the 1.9% and 2% in 2018. If that happens, it will be the lowest growth rate since 2015.

Comprehensive downward revision of growth expectations of emerging markets

IMF This comprehensive downward revision of growth expectations of emerging markets and developing economies is expected to grow by 4.1% in 2019 and accelerate to 4.7% in 2020. Compared with April this year, they were reduced by 0.3 percentage points and 0.1 percentage points respectively.

IMF forecasts that emerging and developing Asia will grow by 6.2% in 2019-2020, down 0.1 percentage points from April WEO forecasts. According to the IMF, this is mainly due to the impact of tariffs on Trade and investment.

WEO expects China to grow by 6.2% and 6.0% in 2019 and 2020, respectively. Earlier, Gian Maria Milesi-Ferretti, deputy director of IMF research, said in an interview with First Financial Journalist during the spring meeting of the IMF and the World Bank that China was still optimistic about its performance this year and next.

In other emerging market regions, the main reason is that Turkey's economic activity is expected to continue to shrink, and the prospects for emerging and developing Europe are bleak in 2019, with an expected growth rate of 2.3% in 2020, down 0.5 percentage points from April's WEO. In Latin America, the IMF is expected to grow by 0.6% this year, down 0.8 percentage points from April, and rise to 2.3% in 2020.

Further easing of global financial conditions

IMF also pointed out that the global financial market has been dealing with two key issues in the past three months. First, investors are increasingly concerned about the impact of increased trade tensions and a weakening global economic outlook. Second, market participants have been trying to address the impact of these tensions on monetary policy prospects.

Since mid-June, many central banks around the world have signalled a shift from monetary policy stance to pigeon policy, on the grounds that the downside risks of low inflation and growth have increased. The Federal Reserve's expected policy interest rate path turned downward, while the ECB extended its forward-looking guidelines to maintain current interest rates until mid-2020 and beyond. Other central banks, including Australia, Brazil, Chile, China, India, Malaysia and the Philippines, have also turned to doves or announced more cautious views on the future.

"This leads to a further reassessment of the expected path of monetary policy. At present, investors expect the central bank to implement greater policy easing. The IMF said the overall impact of these developments is that global financial conditions have eased further since the launch of the WEO in April.

The IMF also pointed out that the loosening of global financial conditions is particularly evident in the United States and the euro zone, while the net change of China's financial conditions and the total change of other major emerging market economies are very small.