<p><strong><em>A combination of many factors has orchestrated a sluggish global growth in July global economic outlook. </em></strong><strong><em>However, financial market sentiment; continued fading of Euro drags; stabilization in Turkey and Argentina emerging markets and avoiding Iran-Venezuela collapses would be the needed elixir </em></strong></p>



<p><strong>By Daniel Akintunde</strong></p>



<p>The
global economic growth has remained subdued. </p>



<p>Since
the April ;World Economic Outlook ;(WEO) report, the United States
further increased tariffs on certain Chinese imports and China retaliated by
raising tariffs on a subset of US imports. Additional escalation was averted
following the June G20 summit. Global technology supply chains were threatened
by the prospect of US sanctions, Brexit-related uncertainty continued, and
rising geopolitical tensions roiled energy prices.</p>



<p>Against
this backdrop, global growth is forecast at 3.2 percent in 2019, picking up to
3.5 percent in 2020 (0.1 percentage point lower than in the April WEO
projections for both years). GDP releases so far this year, together with
generally softening inflation, point to weaker-than-anticipated global
activity. Investment and demand for consumer durables have been subdued across
advanced and emerging market economies as firms and households continue to hold
back on long-range spending. Accordingly, global trade, which is intensive in
machinery and consumer durables, remains sluggish. The projected growth pickup
in 2020 is precarious, presuming stabilization in currently stressed emerging
market and developing economies and progress toward resolving trade policy
differences.</p>



<p>Risks
to the forecast are mainly to the downside. They include further trade and
technology tensions that dent sentiment and slow investment; a protracted
increase in risk aversion that exposes the financial vulnerabilities continuing
to accumulate after years of low interest rates; and ;mounting
disinflationary pressures that increase debt service difficulties, constrain
monetary policy space to counter downturns, and make adverse shocks more
persistent than normal.</p>



<p>Multilateral
and national policy actions are vital to place global growth on a stronger
footing. The ;pressing needs include reducing trade and technology tensions
and expeditiously resolving uncertainty around trade agreements (including
between the United Kingdom and the European Union and the free trade area
encompassing Canada, Mexico, and the United States). Specifically, countries
should not use tariffs to target bilateral trade balances or as a substitute
for dialogue to pressure others for reforms. With subdued final demand and
muted inflation, accommodative monetary policy is appropriate in advanced
economies, and in emerging market and developing economies where expectations
are anchored. Fiscal policy should balance multiple objectives: smoothing
demand as needed, protecting the vulnerable, bolstering growth potential with
spending that supports structural reforms, and ensuring sustainable public
finances over the medium term. If growth weakens relative to the baseline,
macroeconomic policies will need to turn more accommodative, depending on
country circumstances. Priorities across all economies are to enhance inclusion,
strengthen resilience, and address constraints on potential output growth.</p>



<p><strong>Weak final demand</strong></p>



<p>Against
a difficult backdrop that included intensified US-China trade and technology
tensions as well as prolonged uncertainty on Brexit, momentum in global
activity remained soft in the first half of 2019. There were positive surprises
to growth in advanced economies, but weaker-than-expected activity in emerging
market and developing economies.</p>



<p>Growth
was better than expected in the United States and Japan, and one-off factors
that had hurt growth in the euro area in 2018 (notably, adjustments to new auto
emissions standards) appeared to fade as anticipated.</p>



<p>Among
emerging market and developing economies, first quarter GDP in China was
stronger than forecast, but indicators for the second quarter suggest a
weakening of activity. Elsewhere in emerging Asia, as well as in Latin America,
activity has disappointed.</p>



<p>Despite
the upside surprises in headline GDP for some countries, data more broadly
paint a picture of subdued global final demand, notably in fixed investment.
Inventory accumulation of unsold goods lifted first quarter GDP in the United
States and the United Kingdom, while soft imports boosted output in China and
Japan.</p>



<p>From
a sectoral perspective, service sector activity has held up, but the slowdown
in global manufacturing activity, which began in early 2018, has continued,
reflecting weak business spending (machinery and equipment) and consumer
purchases of durable goods, such as cars. These developments suggest that firms
and households continue to hold back on long-range spending amid elevated
policy uncertainty.</p>



<p>Soft
global trade</p>



<p>Spending
patterns are also reflected in global trade, which tends to be intensive in
investment goods and consumer durables. Trade volume growth declined to around
½ percent year-on-year in the first quarter of 2019 after dropping below 2
percent in the fourth quarter of 2018. The slowdown was particularly notable in
emerging Asia.</p>



<p>Weak
trade prospects—to an extent reflecting trade tensions—in turn create headwinds
for investment. Business sentiment and surveys of purchasing managers for
example point to a weak outlook for manufacturing and trade, with particularly
pessimistic views on new orders. The silver lining remains the performance of
the service sector, where sentiment has been relatively resilient, supporting
employment growth (which, in turn, has helped shore up consumer
confidence). ;</p>



<p>Muted
inflation</p>



<p>Consistent
with subdued growth in final demand, core inflation across advanced economies
has softened below target (for example in the United States) or remained well
below it (euro area, Japan). Core inflation has also dropped further below
historical averages in many emerging market and developing economies, barring a
few cases such as Argentina, Turkey, and Venezuela.</p>



<p>With
global activity generally remaining subdued, supply influences continued to
dominate commodity price movements, notably in the case of oil prices (affected
by civil strife in Venezuela and Libya and US sanctions on Iran). Despite the
large run-up in oil prices through April (and higher import tariffs in some
countries), cost pressures have been muted, reflecting still-tepid wage growth
in many economies even as labor markets continued to tighten. Headline
inflation has therefore remained subdued across most advanced and emerging
market economies. These developments have contributed, in part, to market
pricing of expected inflation dropping sharply in the United States and the
euro area.</p>



<p>Mixed
policy cues and shifts in risk appetite</p>



<p>Policy
actions and missteps have played an important role in shaping these outcomes,
not least through their impact on market sentiment and business confidence.
While the six-month extension to Brexit announced in early April provided some
initial reprieve, escalating trade tensions in May, fears of disruptions to
technology supply chains, and geopolitical tensions (for example, US sanctions
on Iran) undermined market confidence.</p>



<p>Risk
sentiment appears to have regained some ground in June, supported by central
bank communications signaling the likelihood of further accommodation.
Following the June G20 summit, where the United States and China agreed to
resume trade talks and avoided further increases in tariffs, market sentiment
has been lifted by the prospect of the two sides continuing to make progress
toward resolving their differences. Financial conditions in the United States
and the euro area are now easier than at the time of the April WEO, while
remaining broadly unchanged for other regions.</p>



<p>The
projected pickup in global growth in 2020 relies importantly on several
factors: (1) financial market sentiment staying generally supportive; (2)
continued fading of temporary drags, notably in the euro area; (3)
stabilization in some stressed emerging market economies, such as Argentina and
Turkey; and (4) avoiding even sharper collapses in others, such as Iran and
Venezuela. About 70 ;percent of the increase in the global growth forecast
for 2020 relative to 2019 is accounted for by projected stabilization or
recovery in stressed economies. In turn, these factors rely on a conducive
global policy backdrop that ensures the dovish tilt of central banks and the
buildup of policy stimulus in China are not blunted by escalating trade
tensions or a disorderly Brexit.</p>

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