Economy

IMF 2019-2020 Outlook: Recession or Synchronized Slowdown?

Jon C. Ogg

Published: October 15, 2019 11:10 am

Last Updated: January 6, 2020 1:59 am

The International Monetary Fund (IMF) has released an update to its latest World Economic Outlook with lower growth expected in 2019. What is interesting about the global outlook, despite all the current economic and geopolitical uncertainties and despite the outlook ahead being a downtick from the prior estimate, is that the IMF is actually still looking for global growth to be better in 2020 than in 2019.

With all the reports in the media calling for imminent recession, economists, employers, business owners and investors all have to decipher the data and forecasts and make their own determination about whether a recession is really coming. If it is just a slowdown to very stagnant growth, will it feel like a normal recession like before the Great Recession of 2008 and 2009?

According to the October 15 update, the IMF’s global GDP growth forecast for 2019 is now 3.0%. This represents a 0.3 percentage point drop from its April 2019 outlook and happens to be the lowest level since the 2008 to 2009 period.

As for 2020, the IMF now projects global growth to tick back up to 3.4%. While that is higher than 2019, it still represents a 0.2 percentage point drop from its April 2019 outlook.

The 2020 outlook is based on projected economic improvements in a number of emerging markets (Latin America, the Middle East and emerging and developing Europe) that have been under macroeconomic strain. The IMF’s projected slowdown in China and the United States, as well as many downside risks, do come with a warning that a “much more subdued pace of global activity could well materialize.”

Over the past year, global growth has fallen sharply and advanced economies such as Europe, the United States and smaller Asian economies have all seen broad-based slowing. The slowdown has been even more pronounced in emerging markets and developing economies like Brazil, China, India, Mexico and Russia. The IMF revised outlook did note how the downward trajectory could be avoided:

To forestall such an outcome, policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to economic activity where needed. To strengthen resilience, policymakers should address financial vulnerabilities that pose risks to growth in the medium term. Making growth more inclusive, which is essential for securing better economic prospects for all, should remain an overarching goal.

The IMF also defined some of the escalating concerns that pose downside risks to the global growth forecast. These are noted, and not in any specific groupings or order, as follows: heightened trade tensions, geopolitical tensions, Brexit-related risks, low inflation and so on.

While 2020’s 3.4% outlook is a downtick for the global growth, it’s only 0.2 percentage points under the 3.6% from 2018. That said, here is the new round of forecasts by nation and region:

• United States: 2.9% in 2018, 2.4% in 2019 and 2.1% in 2020
• Canada: 1.9% in 2018, 1.5% in 2019 and 1.4% in 2020
• Euro Area: 1.9% in 2018, 1.2% in 2019 and 1.4% in 2020
• Germany: 1.5% in 2018, 0.5% in 2019 and 1.2% in 2020
• United Kingdom: 1.4% in 2018, 1.2% in 2019 and 1.4% in 2020
• France: 1.7 in 2018, 1.2% in 2019 and 1.3% in 2020
• Italy: 0.9% in 2018, 0.0% in 2019 and 0.5% in 2020
• Japan: 0.8% in 2018, 0.9% in 2019 and 0.5% in 2020
• China: 6.6% in 2018, 6.1% in 2019 and 5.8% in 2020
• India: 6.8% in 2018, 6.1% in 2019 and 7.0% in 2020
• Russia: 2.3% in 2018, 1.1% in 2019 and 1.9% in 2020
• Brazil: 1.1% in 2018, 0.9% in 2019 and 2.0% in 2020

While it’s easy to sound as though this entirely refutes the recession risks, it’s far from easy. Frankly, some of these projections feel quite optimistic if the status quo remains in place or continues to soften. Many economic numbers are already hitting under the line of growth versus contraction. There are also currently more risks to the downside than there are to the upside.

It is always important to go back in time and see how things looked in past forecasts compared with what ended up taking place. Here are some notes ahead of the Great Recession from the IMF summaries from its same blog post history.

July 25, 2007:

The strong global expansion is continuing, and projections for global growth in both 2007 and 2008 have been revised up to 5.2 percent from 4.9 percent at the time of the April 2007 World Economic Outlook (WEO). Risks to this favorable outlook remain modestly tilted to the downside.

January 29, 2008:

Following strong growth through the third quarter of 2007, the global economic expansion has begun to moderate in response to continuing financial turbulence. Global growth is projected to decelerate from 4.9 percent in 2007 to 4.1 percent in 2008, a markdown of 0.3 percentage point relative to the October 2007 World Economic Outlook. Risks to the outlook remain tilted to the downside.

July 2008:

The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing economies. Global growth is expected to decelerate significantly in the second half of 2008, before recovering gradually in 2009 … the top priority for policymakers is to head off rising inflationary pressure, while keeping sight of risks to growth. In many emerging economies, tighter monetary policy and greater fiscal restraint are required, combined in some cases with more flexible exchange rate management. In the major advanced economies, the case for monetary tightening is less compelling, given that inflation expectations and labor costs are projected to remain well anchored while growth weakens noticeably, but inflationary pressures need to be monitored carefully.

November 2008:

Prospects for global growth have deteriorated over the past month, as financial sector deleveraging has continued and producer and consumer confidence have fallen. Accordingly, world output is projected to expand by 2.2 percent in 2009, down by some 3/4 percentage point of GDP relative to the projections in the October WEO. In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the post-war period. In emerging economies, growth is projected to slow appreciably but still reach 5 percent in 2009. However, these forecasts are based on current policies. Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.

January 2009:

World growth is projected to fall to 1/2 percent in 2009, its lowest rate since World War II. … A sustained economic recovery will not be possible until the financial sector’s functionality is restored and credit markets are unclogged … new policy initiatives are needed to produce credible loan loss recognition; sort financial companies according to their medium-run viability; and provide public support to viable institutions by injecting capital and carving out bad assets. Monetary and fiscal policies need to become even more supportive of aggregate demand and sustain this stance over the foreseeable future, while developing strategies to ensure long-term fiscal sustainability. Moreover, international cooperation will be critical in designing and implementing these policies.