The International Monetary Fund has not predicted such low GDP growth for the global economy for ten years. However, the latest IMF forecasts indicate that 2019 will be the worst year and that there will be a recovery in 2020.
According to the October World Economic Outlook publication, the global economy is experiencing a period of synchronized slowdown. Both developed and developing economies are weakening. According to the IMF, in 2019, GDP for the global economy is to increase by 3 percent, which means cutting the forecast from 3.2 percent in July. In turn, in 2020, GDP is to increase to 3.4 percent, which also means lowering the forecast from 3.5 percent. These are the lowest economic forecasts since 2009.
Developed economies are expected to show a growth rate of 1.7 percent in 2019 and 2020 while developing economies are to increase by 3.9 in 2019 and by 4.6 percent in 2020. As we can read in a document published by the IMF, the main reason for lowering forecasts is the ongoing trade war.
After slowing sharply in the last three quarters of 2018, the pace of global economic activity remains weak. Momentum in manufacturing activity, in particular, has weakened substantially, to levels not seen since the global financial crisis. Rising trade and geopolitical tensions have increased uncertainty about the future of the global trading system and international cooperation more generally, taking a toll on business confidence, investment decisions, and global trade - IMF statement says.
To sum up, the optimistic accent of the current forecasts is that it will not be worse than in 2019. Developed economies are expected to maintain a slow pace of growth, but at least it is not expected to decline further, and developing economies may rebound after the current slowdown. If such a scenario were to be implemented, then as part of the business cycle we should be closer to the recovery phase. In theory, this may mean a reduction in demand for bonds whose prices are already very high, and a shift in demand towards shares, which, in turn, valuations are not that high even after one of the strongest bull market in history.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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