Global growth prospects

In its latest update to its World Economic Outlook (WEO), the IMF has trimmed its global growth estimates for 2020 to 3.3 percent, 0.1 percent lower than its October, 2019 estimates and for 2021 by 0.2 percent to 3.4 percent. According to its chief Kristalina Georgieva, the sharp drop in growth in India accounted for the lion's share of this downward revision. The expected GDP growth in India was slashed by as much as 1.2 percentage points this year and 0.9 percentage points in 2021 to 5.8 percent and 6.5 percent, respectively, compared to the October forecasts. The US-China trade truce, however tenuous, has led to an upgrade of China's growth forecast to 6.0 percent in 2020, with a slight slowdown to 5.8 percent projected for next year. The US growth rate, in the meanwhile, was trimmed just a tenth to 2.0 percent this year and to 2.1 percent in 2021 because of the fading stimulus effects from 2017 tax cuts and the monetary easing by the Federal Reserve. Eurozone growth has also been marked down by 0.1 percentage points from October forecast to 1.3 percent for 2020 largely due to a manufacturing contraction in Germany and decelerating domestic demand in Spain. Receding risks of a hard Brexit have helped stabilize the outlook for Britain and the EU somewhat. Other emerging markets also saw a downgrade in forecasts including Chile which had been hit by social unrest and Mexico that will grow only by 1.0 percent in 2020, down from 1.3 percent forecast in October, 2019. Brazil has stabilized and its growth forecast is upgraded.

While these growth prospects were presented in Swiss ski resort of Davos by the IMF, the charity, Oxfam, warned the world leaders of growing social inequality and the pressures it was generating. According to its information, world's 2,153 billionaires now have more money than the planet's 4.6 billion poorest people. "The gap between rich and poor can't be resolved without deliberate inequality-busting policies," Oxfam's India head Amitabh Behar added.

Although the updating of data in the WEO by the IMF is a routine affair, the latest outlook is important due to a number of unusual factors behind the preparation of growth forecasts which have impacted the projections in one way or the other. The most important factor is the easing of US-China trade tensions which has lessened uncertainty and encouraged the IMF to say that global growth appears to have bottomed out but there is no rebound in sight because the Phase II of the deal between the two largest economies is yet to be concluded. Obviously, the IMF cannot say something very definitive unless the underlying causes of trade tensions and other fundamental issues are not resolved. The importance of this agreement could be gauged from the fact that China's 2020 growth forecast was revised upwards by 0.2 percentage points to 6.0 percent just because the Phase I of the trade deal included a partial tariff reduction and cancelled tariffs on Chinese consumer goods. It is also obvious that India has emerged as an important economy on the global scene and a sharp slowdown in its growth is causing a drag worldwide. India is of course struggling with declining consumption and investment, budget deficits and delays in making structural reforms. Besides, constant confrontation with Pakistan and simmering tensions within the country due to the Kashmir issue and some unwise decisions such as the controversial citizenship law are making things more difficult for New Delhi. Most of these issues are endemic and will take considerable time to be resolved. It is good to see, however, that receding risk of a hard Brexit has brightened the prospects in England and the EU while a healthy private consumption has upgraded the growth prospects in Japan.

While the data on growth prospects in different countries will make a marginal difference on most of the citizens residing in these countries, Oxfam has, in our view, done a good job in highlighting the problem of growing social and income inequality between the Haves and Have nots. It is very distressing to know that only 2,153 billionaires are having more money than the 4.6 billion poorest living in this world. If such a level of inequality is allowed to persist or grow without any checks and balances, the world is sure to see a social unrest or a crisis in the coming years which could easily wash away the gains of the present development. As such, proper fiscal policies need to be urgently adopted to narrow the gap between the rich and the poor in a meaningful manner. It may be painful for the average and the poor households to see that economic problems of the world including the very poor are being discussed at Davos, arguably the most luxurious place in the world.