The International Monetary Fund (IMF) has downgraded near-term global growth prospects to 3.7 percent from 3.9 percent for both 2018 and 2019 in its latest World Economic Outlook, said a Qatar National Bank (QNB) report on Saturday.
While the new projections still suggest a robust performance, specially when compared to the last decade, the outlook is less promising.
Global growth seems to have peaked as downside risks continue to rise and materialise. Besides, there is less potential for upside surprises and the expansion has become less synchronised across countries. Four key factors contributed to the recent mark down in projections for global activity, the report said.
The recent economic data and key business surveys suggest that the global economy has already begun to lose momentum. The latest global Purchasing Managers Index (PMI) survey, released at the beginning of October, was the weakest in 24 months.
While the index of 52.8 is still in expansion territory (above 50), it is below the 53.8 average in 2017. Activity has particularly disappointed in key advanced economies, such as the Euro area and the United Kingdom, where growth projections were downgraded respectively to 2.0 percent from 2.4 percent and to 1.4 percent from 1.6 percent.
The bank said that softer growth in Europe seems to have been caused by both temporary and more lasting cyclical factors, including weather conditions, high levels of sick leaves, industrial strikes, and lower export and investment growth.
To mitigate an overheating of the US economy, the US Federal Reserve has started to tighten monetary policy. Four more 25bp rate hikes are expected until the end of 2019, which would harness US growth from a boom-like 2.9% in 2018 to around 2.5 percent in 2019, more in line with the estimated potential growth rate of 2 percent, the report said.
The Eurozone growth is expected to cool off more in 2019 as the ECB finally winds down quantitative easing by year-end and mulls a rate hike by end-2019. Interest rate hikes in key advanced economies are expected to add pressure to emerging markets (EM) with large external financing requirements.
Portfolio capital outflows and the threat of disorderly FX depreciations are already forcing several EM central banks to pro-cyclically tighten their monetary policy settings, reining in growth. In fact, EM growth projections were revised to 4.7 percent for both this year and next, down from 4.9 percent for 2018 and 5.1 percent for 2019.
Higher oil prices are contributing to reduce discretionary spending, weakening consumption and dragging on growth, especially in countries that are net oil importers. As several countries lifted fuel subsidies during the last period of low oil prices in 2015-16, consumers are even more exposed to higher oil prices this time around.
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