Growth to slow down to 2.4pc in 2020: IMF – Newspaper

WASHINGTON: The International Monetary Fund (IMF) on Monday estimated that Pakistan's economy would slow down to 2.4 percent in 2020 and recover quickly after that, as stabilization measures work.

At a press conference at the launch of the 2019 World Economy Outlook, IMF economist Gian Maria Milesi-Ferrtti said the Pakistani authorities stood firm on the fiscal adjustment and that the country was now regaining stability as a result. He was answering a question about how renewed tension in Kashmir could affect the growth prospects in India and Pakistan, said Gita Gopinath, the IMF Economic Counselor and Director of the Research Department.

While Gita stopped the question, Gian said that countries needed to contain tensions and focus on economic activities. He said there were good signs on the confidence front that the exchange rate showed economic conditions more realistically. He expressed the hope that the authorities will remain firm in the face of some of the challenges, such as renewed regional tensions and oil prices because Pakistan relied heavily on oil imports.

He said that while India would have a strong growth rate of 6.5pc next year, however, it was lower than in recent years, which could not be maintained and geopolitical tensions could affect growth prospects.

He says that the authorities remain firm in the fiscal adjustment and that Pakistan is regaining stability as a result

Speaking positively about Pakistan's progress in the IMF-supported economic program, Gian said Islamabad had an ambitious program with the Fund that had exceeded "our expectations."

He noted that the demand for global financial flows was recovering for Pakistan, which would help revive growth, adding that macroeconomic imbalances remained and that oil-importing countries were sensitive to world oil prices.

Earlier, when discussing World Economic Outlook, Ms. Gopinath said that the global economy was in a synchronized slowdown and that the IMF was again reducing growth for 2019 to 3pc, its slowest pace since the global financial crisis.

Economic growth continues to be weakened by increasing trade barriers, as well as by geopolitical tensions. "We estimate that trade tensions between the US and China will cumulatively reduce the level of world GDP by 0.8pc by 2020. Growth is also affected by country-specific factors in several emerging market economies and by structural forces, such as Low productivity growth and aging demographics in advanced economies, "he said.

In the economic outlook for October, the IMF projected a modest improvement in global growth of 3.4{7be40b84a6a43fc4fae13304fce9a2695859798abfc41afd127b9f8b21c5f9c5} in 2020, another downward revision of 0.2{7be40b84a6a43fc4fae13304fce9a2695859798abfc41afd127b9f8b21c5f9c5} of April projections. However, unlike the synchronized deceleration, this recovery does not have a broad base and remains precarious.

Weak growth is driven by a sharp deterioration in manufacturing activity and world trade, with higher tariffs and prolonged uncertainty in commercial policy that damages investment and demand for capital goods. In addition, the automobile industry is contracting due to a variety of factors, such as the interruptions of the new emission standards in the euro area and China that have had lasting effects. Overall, commercial volume growth in the first half of 2019 fell to 1pc, the weakest level since 2012.

Unlike extremely weak manufacturing and commerce, the service sector continues to resist almost worldwide. This has kept buoyant labor markets and wage growth and consumer spending in advanced economies. However, there are some initial signs of weakening in the service sector in the United States and the euro area.

Monetary policy has played an important role in supporting growth. In the absence of inflationary pressures and facing a weakened activity, the main central banks have adequately relaxed to reduce the downside risks for growth and avoid canceling inflation expectations. In the absence of such monetary stimulus, global economic growth is estimated to be 0.5 percentage point lower in both 2019 and 2020.

This contrasts with the approach of the central bank of Pakistan that has been in adjustment mode since the country entered the IMF program last year.

Ms. Gopinath said that advanced economies continued to slow down towards their lowest long-term potential. Growth has been reduced to 1.7pc for 2019 (compared to 2.3pc in 2018) and is expected to remain at this level in 2020. Solid labor market conditions and political stimulus are helping to offset the negative impact of the weaker external demand for these economies.

Growth in emerging markets and developing economies has also been revised down to 3.9pc for 2019 (compared with 4.5pc in 2018) due in part to the uncertainties of commercial and national policies, and a structural slowdown in China.

The rebound in global growth by 2020 is driven by emerging markets and developing economies, which are expected to experience a rebound in growth at 4.6pc. About half of this upturn is due to lower recessions or recessions in stressed emerging markets, such as Argentina, Iran and Turkey, and the rest to recoveries in countries where growth slowed significantly in 2019 compared to 2018, such as Brazil, India, Mexico, Russia and Saudi Arabia. However, there is considerable uncertainty about these recoveries, especially when major economies such as the United States, Japan and China are expected to slow down further in 2020.

Posted on Dawn, October 16, 2019

Source: https://www.dawn.com/news/1511074/growth-to-slow-down-to-24pc-in-2020-imf

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