International Monetary Fund cuts SA's 2019 economic growth forecast

Andrew Cummings
April 10, 2019

The correlation with the ups and downs of crude oil prices is clear.

Projected GDP expansion for 2020 has also been lowered from 1.7% to 1.5%.

Beyond 2020, the report said global growth will be sustained at about 3.6% because of the increase in the relative size of economies such as China and India, which are projected to have robust growth in comparison to slower-growing advanced and some emerging market economies.

China's growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States.

The global lender cut its global economic growth forecasts for 2019 and said key risks included a US-China trade war and a potentially disorderly British exit from the European Union.

Global growth is forecast to slow to 3.3% in 2019 from 3.6% in 2018 with a the Reserve Bank of India's threshold of 4% in the current fiscal at 3.9% and marginally exceed at 4.2% next year. While the improvement in financial markets has been rapid, those in the real economy have been slow to materialize.


According to the International Monetary Fund, convergence prospects are bleak for some emerging markets and developing economies.

The IMF expects the world economy to grow 3.3 per cent this year, down from 3.6 per cent in 2018.

Growth among advanced economies is seen easing to 1.8% from 2.2% a year ago, while expansion of emerging markets is seen softer at 4.4% from the 4.5% estimate under the latest WEO Update.

Global growth is therefore expected to return to 3.6%, but this is subject to a rebound in Argentina and Turkey and certain emerging market risks not manifesting.

For the rest of the world, the International Monetary Fund is seeing a rebound in market sentiment following some easing in the "tight" financial conditions experienced late 2018, as many central banks raised interest rates then.

She said: "Beyond 2020, global growth is expected to stabilize at around 3½ percent, bolstered mainly by growth in China and India and their increasing weights in world income". China's growth for 2019 and 2020 was cut by 0.1 percentage point each.


On a monthly measure, the economy grew by 0.2%, faster than the 0% forecast.

If trade tensions worsen, Gopinath warned that it could trigger "large disruptions in global supply chains".

Other suggestions for India in the outlook include improving the governance of public sector banks; reforms to hiring and dismissal regulations to incentivise job creation and absorb the country's large demographic dividend; and land reform to facilitate and expedite infrastructure development.

Fiscal policy will need to manage trade-offs between supporting demand, protecting social spending, and ensuring that public debt remains on a sustainable path, with the optimal mix depending on country-specific circumstances. For monetary policy, it's to stay tight for some more time. Additionally, it calls for multilateral cooperation to address trade conflicts, climate challenges, cybersecurity issues and to enhance the effectiveness of the global tax system.

The report says in the next fiscal year, the economic growth rate in Pakistan will further slow down to only 2.8% and by 2024 the average pace will be just 2.5%. "In that case, policymakers will need to adjust", she added.

The US economy was seen doing better than most other rich nations, but it too was downgraded on signs that a fiscal stimulus fuelled by tax cuts was producing less activity than previously expected. Pakistan will remain a net debtor.


Other reports by iNewsToday

FOLLOW OUR NEWSPAPER