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Wednesday, 16 October 2019

IMF downgrades expectations for 2019 global growth amid “synchronized slowdown”

IMF downgrades 2019 global growth outlook to 3%: The global economy is in a “synchronized slowdown,” IMF Chief Economist Gita Gopinath said in the fund’s latest World Economic Outlook (pdf), which has again downgraded its 2019 growth projections to 3.0% from 3.3% in its April report. Growth is expected to rebound slightly in 2020 to 3.4%, albeit at a slower rate than the 3.6% forecast in April. The IMF attributes the downgrade to a “geographically broad-based” slump in manufacturing and global trade, driven by an increase in tariffs and a contraction in the auto sector caused in part by new emission standards in the Eurozone and China. The latest outlook was released to coincide with the annual meetings of the IMF and the World Bank, which are taking place this week in Washington, DC.

Stimulus in advanced economies and emerging markets has helped mitigate the impact of economic headwinds, including the persistence in US-China trade tensions, which alone could be responsible for shaving 0.8% off global growth in 2020. Without this, we could have instead been looking at just 2.5% growth this year and 2.9% in 2020, Gopinath says.

The problem remains in advanced economies, which are expected to see growth plateau at 1.7% this year and the next. Emerging markets and developing economies will pick up the slack, seeing growth accelerate from 3.9% this year to 4.2% in 2020. “About half of this is driven by recoveries or shallower recessions in stressed emerging markets, such as Turkey, Argentina, and Iran, and the rest by recoveries in countries where growth slowed significantly in 2019 relative to 2018, such as Brazil, Mexico, India, Russia, and Saudi Arabia,” the report says.

What are the forecasts for Egypt? Growth is forecast at 5.5% in 2019, 5.9% in 2020, and 6.0% in 2024. The current account deficit is expected to rise to 3.1% in 2019 before easing to 2.8% in 2020. Meanwhile, the IMF sees inflation rising back to 9.4% by the end of 2019, before falling back to 8.7% by the end of 2020.

How does this square with the IMF’s projections in July? Making a direct comparison between the latest outlook and the forecast given in the fund’s most recent economic review is tricky, given that it uses calendar years for the outlook and fiscal years for the review. Nevertheless, there doesn’t seem to have been a drastic change in thinking over the past three months: the IMF predicted Egypt’s GDP would grow 5.9% during the current fiscal year and see inflation reaching 9.6% by the end of the year in June 2020.

The IMF wants to agree a post-loan program with Egypt to help it continue on its reform path, Managing Director Kristalina Georgieva told Prime Minister Moustafa Madbouly on the sidelines of the meetings yesterday, according to a cabinet statement. She highlighted the need for continued reform of the lower levels of government, and urged Madbouly to continue developing the country’s human capital. The government was originally looking to secure a non-loan agreement by the end of this month, but the IMF refused to open talks until the current program had finished.

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