Highlights:
– Growth slowdown in the euro area a key concern; European Central Bank hopeful of a rebound later
– China: Stimulus programme and a possible trade deal can stabilise economy
– Brexit remains a key watch on geopolitical risk
– Central banks’ independence emerges as another key discourse
– Emerging markets: Capital flows could sustain due to better economic momentum
The recent spring meeting of the International Monetary Fund (IMF) and World Bank provided yet another occasion to assess the global economic strength and the risks to it. Earlier this month, IMF flagged off further deceleration in global growth compared to its assessment in January. It has projected a growth of 3.3 percent in 2019 – a downgrade of 20 basis points. However, its projection of 3.6 percent for 2020 remains intact, implying a rebound next year.
Growth concerns in the euro area and China
Among the major downward revisions in its projections, IMF downgraded its growth outlook for the euro area to 1.3 percent in 2019 from 1.6 percent at the start of the calendar year. It expects growth to be weaker in several major European economies. In Germany and Italy, the growth downgrade has been much sharper. The export-oriented economy of Germany has not only been impacted by weak global demand, but tougher car emission standards have weighed on its automobile industry in recent times.
Given this context, the European Central Bank (ECB) kept its interest rate policy on status quo, marked by liquidity measures like new long-term loan programmes. However, it remains hopeful of a rebound in the economy later this year as some of the factors that have held back growth appear to be waning.
In the case of China, surprisingly, there has been a slight upward revision in IMF’s projections, implying that growth could be stabilising here after the recent stimulus programmes.
Geopolitical risks – Brexit and trade tensions
Brexit remains a key geopolitical risk. While officially the Brexit deadline has been postponed to October 31, UK Chancellor of the Exchequer Philip Hammond is hopeful that a Brexit deal should be struck between the government and Labour Party in weeks. Jeremy Corbyn (Leader of the Labour Party) has demanded keeping the common external tariff policy with the EU. It’s noteworthy that the volatility in the pound versus the dollar has significantly eased over the last few days.
