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In the IMF’s latest economic projections there is some good news. While global economic growth fell from 3.6% in 2018 to an estimated 2.9% in 2019, some bounce back was anticipated, to 3.3% in 2020 and 3.4% for 2021 (see Chart 1).
For advanced economies, growth is expected to stabilise at 1.6% in 2020 (from 1.7% in 2019). Slower growth is expected for the United States, with fading benefits from earlier tax cuts. Across emerging markets, growth is expected to increase to 4.4% in 2020 (from 3.7% in 2019), supported by substantial monetary easing. The IMF forecasts that Australia will grow by 2.3% in 2020, compared to an estimated 1.7% in 2019, placing Australia 14th out of 39 advanced economies for economic growth prospects for 2020.
Trade policy uncertainty and geopolitical tensions continued to weigh on global economic activity, particularly manufacturing and trade, in the second half of 2019. As a result, business investment has been held back from the levels it might otherwise have reached, helping to produce the more sombre economic growth picture in 2019. But monetary policy has also continued to ease into the second half of 2019 in several economies, providing support to global economy and setting a platform for some improvement in 2020.
Chart 1: IMF World Economic Outlook, GDP growth projections for 2020
New challenges have emerged more recently, post these projections, which are likely to curtail China’s economic growth (perhaps significantly). This is of course from the spread of the coronavirus and the various travel bans that have been put in place by economies around the world. The effects will ripple through the global economy, although the impact will be more acute for China, with current paralysis of large parts of China’s society and economy.
Indeed, IMF Managing Director Kristalina Georgieva says that the coronavirus is likely to have a more significant economic impact than SARS in 2002-03, because China is a much larger component and far more integrated with the global economy. She noted that, at the time of SARS, China accounted for about 4% of global GDP. Today the figure is closer to 18%.
Australia is in the slipstream of these risks. Iron ore prices have already dropped 10% over the last two weeks and the leading indicators of global dry bulk shipping prices are worrying. Australia now has travel bans in place, blocking any foreign nationals arriving from China or transiting through China. If these remain in place for an extended period of time, this will have a significant impact on our international education and tourism sectors, with the latter also impacted by the ongoing bushfires.
In addition, a sustained further weakening in confidence or financial market instability are risks to keep watch for. The IMF baseline economic forecasts for 2020 may be somewhat comforting, but risks are ever present.
David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis. David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.
Jasmine has extensive experience as a macroeconomist. She has extensive experience in macroeconomic analysis and forecasting, econometric modelling and scenarios design/modelling. She is responsible for the Deloitte Horizon macroeconomic scenario model. Prior to joining Deloitte Access Economics, Jasmine has worked as a macroeconomist across the private and public sectors in Australia and Singapore.