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Sunday, 8 March 2020

Global growth could fall to 1% this year -IIF

Global growth could fall to 1% this year -IIF: Global economic growth could fall to just 1% this year due to the impact of the covid-19 outbreak on the services and manufacturing sectors, the International Institute of Finance (IIF) has said. In a report published on Thursday, the financial association said it has lowered growth forecasts for the US economy to 1.3% in 2020 (down from 2% previously) and to less than 4% for the Chinese economy (from 5.9% previously). This could result in global growth of just 1% through the rest of the year, more than two times lower than the 2.6% achieved in 2019 and the lowest since the financial crisis.

Manufacturing clearly hit, effect on services still unclear: The IIF is reconsidering its ‘no recession’ prediction made last year when it became clear that the cause of the manufacturing slowdown was rooted in inventory overhang rather than supply chain disruptions. The virus has radically changed the outlook for the sector which is now suffering from a serious supply shock. But the true extent of the fallout will depend on the services sector, “where the severity of effects depends on the scale of contagion and resulting containment measures,” the IIF wrote.

The pressure on emerging markets is increasing, but Fed emergency cut provides cover for further easing: Emerging markets central banks taking cues from the US Federal Reserve could cut rates without risking devalued currencies, the IIF says. This is important in “high carry, low growth” countries such as Mexico and South Africa, but also holds true in other places. After the Fed’s dramatic 50 bps emergency cut last week, coordinated easing could prove a key tool to maintain EM growth and support the global economy.

The situation is still highly uncertain: “The range of potential outcomes is large and depends on the spread of the virus and resulting economic fall-out, all of which are highly uncertain at this stage,” the IIF wrote. “ The range of possible outcomes is large and uncertainty around any

forecast bigger than under normal circumstances.”

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