What's going on?
The International Monetary Fund (IMF) trimmed its growth forecasts for the global economy on Monday, but it also softened previous risk warnings.
What does this mean?
The IMF – a sort of bank for countries and thus an authority on this sort of thing – now expects the world economy to grow 3.3% in 2020 and 3.4% in 2021, down from previous forecasts of 3.4% and 3.6%. Still, that’d represent a marked improvement on the 2.9% growth seen in 2019: the slowest since the last financial crisis a decade ago. Adding to the sense of hope, the IMF also said in its outlook that it sees fewer negative risks to the global economy in 2020. Phew…
Why should I care?
The bigger picture: A balance of probabilities.
Despite holding or pruning its growth forecasts for most of the world’s largest economies, the IMF lifted China’s presumptive pullulation as a result of the initial trade deal signed with the US last week. Taken together with signs that the slump in manufacturing is bottoming out and central banks’ cutting of interest rates around the world, the IMF thinks this could be good for global growth. But it’s also got a long list of potential negatives to balance that out: as well as the risk of renewed trade tensions, there’s heightened US-Iran conflict that could hit oil supply, social unrest, and weather-related disasters.
For markets: Interesting times.
The IMF reckons that global growth would have been 0.5% slower in 2019 had central banks not cut interest rates last year, and that tailwind should extend to 2020 as well. Stronger economic growth based on cheap borrowing could lead to higher company profits – and lower interest rates help lift stock prices in other ways too, including by making their dividend payments relatively more attractive. According to analysts at investment bank Goldman Sachs, the lower interest rates offered by bonds drove 90% of US stocks’ returns last year (tweet this).