January 2019: The International Monetary Fund (IMF) reports, in an update to its World Economic Outlook, that global economic expansion has weakened. Escalating trade tensions remain a key source of risk to the global economic outlook, the authors note, with potential triggers including a “no-deal” withdrawal of the UK from the EU (Brexit) and a greater-than-envisaged slowdown in China. Publications from the World Bank and Organisation for Co-operation and Development further highlight risks in low-income countries and the role of digitalization in widening inequalities.

The Fund says the global economy is now projected to grow at 3.5% in 2019 and 3.6% in 2020, respectively 0.2% and 0.1% point below projections from October 2018. Global growth has been revised downward because of negative effects of tariff increases enacted in the US and China, and softer momentum in Europe in the second half of 2018.

In advanced economies, growth is projected to slow from an estimated 2.3% in 2018 to 2.0% in 2019 and 1.7% in 2020. Growth in the Euro area is set to moderate from 1.8 % in 2018 to 1.6 % in 2019 and 1.7 % in 2020. Growth rates have been marked down for many economies: Germany (due to soft private consumption, weak industrial production following the introduction of revised auto emissions standards, and subdued foreign demand); Italy (due to weak domestic demand and higher borrowing costs as sovereign yields remain elevated); and France (due to the negative impact of street protests and industrial action). For the UK, the IMF notes that there is “substantial uncertainty” around the baseline projection of about 1.5% growth in 2019-20, because of Brexit negotiations. The growth forecast for the US remains unchanged: growth is expected to decline to 2.5% in 2019 and further to 1.8% in 2020. Japan’s economy is set to grow by 1.1% in 2019 and to 0.5% in 2020.

For the emerging market and developing economy group, growth is expected to decline to 4.5% in 2019 before improving to 4.9 % in 2020. Growth in emerging and developing Asia will go from 6.5% in 2018 to 6.3% in 2019 and 6.4% in 2020. China’s economy will slow due to the combined influence of needed financial regulatory tightening and trade tensions with the US, while India’s economy is expected to increase in 2019, benefiting from lower oil prices and a slower pace of monetary tightening than previously expected.

Climate change presents “an overarching challenge” for the global community, and measures to enhance inclusiveness are imperative, the IMF reports.

In Latin America, growth is projected to recover over the next two years, from 1.1% in 2018 to 2.0% in 2019 and 2.5% in 2020. The downward revisions are due to a downgrade in Mexico’s growth prospects in 2019-20, reflecting lower private investment, and a more severe contraction in Venezuela than previously anticipated. These downgrades are partially offset by an upward revision to the 2019 forecast for Brazil, where the gradual recovery from the 2015-16 recession is expected to continue. According to IMF, Argentina’s economy will contract in 2019 as tighter policies aimed at reducing imbalances slow domestic demand, before returning to growth in 2020.

Growth in the Middle East, North Africa, Afghanistan and Pakistan region is expected to remain at 2.4% in 2019 before recovering to about 3% in 2020. The region’s outlook is influenced by factors such as: weak oil output growth, which offsets an expected pickup in non-oil activity (Saudi Arabia); tightening financing conditions (Pakistan); US sanctions (Iran); and, across several economies, geopolitical tensions.

In sub-Saharan Africa, growth is expected to increase from 2.9 % in 2018 to 3.5 % in 2019, and 3.6 % in 2020. The growth projection was revised downward because of softening oil prices that caused downward revisions for Angola and Nigeria. The IMF notes that the numbers for the region mask “significant variation” in performance, with over one-third of sub-Saharan economies expected to grow above 5% in 2019-20.

Furthermore, outside the US, industrial production has decelerated, particularly of capital goods. Global trade growth has slowed to well below 2017 averages. Beyond escalating trade tensions and a deeper-than-envisaged slowdown in China, IMF’s Economic Outlook notes ongoing declines in trust of established institutions and political parties as a “risk of a somewhat slower-moving nature.” It adds that “an overarching challenge for the global community” is mitigating and adapting to climate change to lower the likelihood of devastating humanitarian and economic effects from extremes in high temperatures, precipitation and drought.

The IMF argues that the main shared policy priority for countries should be to resolve “cooperatively and quickly” their trade disagreements and the resulting policy uncertainty, rather than raising barriers further and destabilizing an already slowing global economy. Across all economies, measures to boost potential output growth, enhance inclusiveness, and strengthen fiscal and financial buffers in an environment of high debt burdens and tighter financial conditions are imperatives, the Fund says.

Also in January, the World Bank Group released its ‘Global Economic Prospects’ report. Subtitled ‘Darkening Skies,’ the publication notes that debt vulnerabilities in low-income countries are rising. While borrowing has enabled many countries to tackle important development needs, the Bank explains, the median debt-to-GDP ratio of low-income countries has climbed, and the composition of debt has shifted toward more expensive market-based sources of financing.

Speaking on the report’s launch, Ayhan Kose, World Bank, argued that designing tax and social policies to level the playing field for formal and informal sectors, as well as strengthening domestic revenue mobilization and debt management, should be key priorities for policymakers.

The Economic Outlook by the OECD, published at the end of November 2018, adds to the global picture by showing how, as digitalization spreads, the divide between high-skill, low-routine jobs and low-skill, high-routine work continues to grow, posing the risk of further widening inequalities. The Outlook says strengthening product market competition would not only prompt wider diffusion of new technologies, thereby raising productivity growth, but also help transfer output and efficiency gains to wages. [IMF Press Release on World Economic Outlook Update, January 2019] [World Bank Press Release] [Publication: Global Economic Prospects: Darkening Skies] [OECD Economic Outlook]