The World Economy Should Regain Some Momentum Later This Year

The global economy began to slow last year, and the best-case scenario is for a continuation of generally moderate growth into 2020.

The International Monetary Fund represents an example of a forecasting agency which has reduced its international projections three times over the last six months.

The IMF is currently projecting only 3.3% global growth this year, which represents the weakest expansion since 2009 when the world’s economy shrank due to the severity of the Great Recession.

World trade is also under downside pressure in this slower growth phase, since there is an obvious linkage between the growth of world GDP and world trade. Trade and global growth are both threatened by higher tariffs and the trade war which seems to be escalating.

The IMF expects the trade in goods and services to increase by only 3.4 percent this year compared with a 3.8% gain in 2018.

As for the conspicuous changes in the international outlook in recent months, virtually all central banks including the US Fed are keeping their policy interest rates on hold because of uncertainties relating to slower international growth and the fallout from the US-China trade war.

The US central bank is expected to remain patient on any new interest rate hikes, even as concerns about a still-too-low inflation rate is offset by an economy pushing up against capacity limits and which is still cranking out a healthy number of new jobs.

At the same time, most advanced economies are experiencing tight labor markets which are still not delivering major increases in either wages or inflation.

Indeed, price inflation continues to be a non-issue for the advanced economies, and this is reflected in unusually low government bond yields.

With respect to the early international growth signs for this year, there were welcome GDP growth rebounds in the US and Euro Area economies in the first quarter.

While Canada’s GDP growth rate is projected to be unusually slow in the first quarter, an unusually strong expansion of jobs in March suggests that the economy is still ticking along quite strongly, albeit at a considerably slower pace than in the United States.

Major World Economies At A Glance: 2018-2020

(Real GDP, Annual % Rates of Change)