BIZweek n°274 24 jan 2020
BIZweek n°274 24 jan 2020
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  • Parution : n°274 de 24 jan 2020

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  • Editeur : Capital Publications Ltd

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VENDREDI 24 JANVIER 2020 BIZWEEK ÉDITION 274 Latest World Economic Outlook growth projections 2019 2020 2021 Estimate Projections (real GDP growth, percent change) www.IMEorg/social COIEVIFNews Trade policy uncertainty, geopolitical tensions, and idiosyncratic stressin key emerging market economies continued to weigh on global economic activity— especially manufacturing and trade—in the second half of 2019. Intensifying social unrest in several countries posed new challenges, as did weather-related disasters—from hurricanes in the Caribbean, to drought and bushfires in Australia, floods in eastern Africa, and drought in southern Africa. Despite these headwinds, some indications emerged toward year-end that global growth may be bottoming out. Moreover, monetary policy easing continued into the second half of 2019 in several economies. Adding to the substantial support the easing provided earlier in 2019, its lagged effects should help global activity recover in early 2020. As discussed below, the 2019 global growth estimate and 2020 projection would have been 0.5 percentage point lower in each year without monetary stimulus. Tentative signs of stabilization at a sluggish pace In the third quarter of 2019, growth across emerging market economies (including India, Mexico, and South Africa) was weaker than expected at the time of the October WEO, largely due to country-specific shocks weighing on domestic demand. The advanced economy group slowed broadly as anticipated (mostly reflecting softer growth in the US after several quarters of abovetrend performance). Despite continued job creation (in some cases, in the context of unemployment rates already at record lows), core consumer price inflation remained muted across advanced economies. It softened further across most emerging market economies amid more subdued activity. Weak demand lowered metals and energy prices, which kept a lid on headline inflation. High frequency indicators for the fourth quarter tentatively suggest momentum stabilized at a sluggish pace, helped by the broad-based shift earlier in the year toward accommodative monetary policy and fiscal easing in some countries (including China, Korea, and the United States). Temporary factors that had 2.3 2.0 2019 ACTA PUBLICA WORLD ECONOMIC OUTLOOK, JANUARY 2020 Tentative Stabilization, Sluggish Recovery ? Global growth is projected to rise from an estimated 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent for 2021—a downward revision of 0.1 percentage point for 2019 and 2020 and 0.2 for 2021 compared to those in the October World Economic Outlook (WEO). The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years. In a few cases, this reassessment also reflects the impact of increased social unrest 2020. 1.7. 2021 UNITED STATES (percent change) 1. 2020 2.3.6 2021 01 - 2019 LATIN AMERICA AND THE CARIBBEAN 1.2 1.3 1.4 2019 2020 2021 Source : IMF, World Economic Outlook Update, January 2020. 3.2 2.8 2021 2020 SUB-SAHARAN AFRICA Note : Order of bars for each group indicates (loft to right) : 2019, 2020 projections, and 2021 projections. slowed global manufacturing—auto sector adjustments to new emissions standards, a lull in the launch of new tech products, and inventory accumulation—appeared to fade. Business sentiment and the outlook of purchase managers in the manufacturing sector ceased deteriorating, but remained pessimistic overall. Importantly, the new orders subcomponent of the surveys pickedup, particularly in emerging market economies. Consistent with the surveys, world trade growth appeared to be bottoming out. Service sector activity on the other hand weakened somewhat but remained in expansionary territory, supported by still-resilient consumer spending—which, in turn, helped maintain tight labor markets, low unemployment, and modestly rising wages. Supportive financial conditions The early signs of stabilization reinforced financial market sentiment already shoredup by central bank rate cuts. Markets appeared to have internalized the outlook for US monetary policy and the Fed’s shift to «on hold» forward guidance following three rate cuts in the second half of 2019. Intermittent favorable news on US-China economic relations and diminished fears of a hard Brexit supported investors’risk appetite. Equities continued to advance in the large advanced economies over the fall ; core sovereign bond yields rose from their September low ; and portfolio flows to emerging market economies strengthened, particularly to bond funds. Currency movements between September and early January reflected the general strengthening of risk sentiment and reduced trade tensions as the US dollar and the Japanese yen weakened by about 2 percent, while the Chinese renminbi gained about 1½ percent. The most notable movement across major currencies was the appreciation of the British pound (4 percent since September) on perceptions of reduced risks of a no-deal Brexit. Financial conditions thus remain broadly accommodative across advanced and emerging market economies. The main considerations for the global growth forecast from the backdrop of recent developments include : carryover from weaker-than anticipated second half outturns for 2019 among key emerging market economies ; signs of tentative stabilization in manufacturing in the fourth quarter, but some weakening in 5.6 5.8 5.9 2020 2021 2019 still-resilient service sector activity ; accommodative financial conditions ; and uncertain prospects regarding tariffs, social unrest, and geopolitical tensions. Global Growth Outlook : Modest Pickup in 2020 Global growth, estimated at 2.9 percent in 2019, is projected to increase to 3.3 percent in 2020 and inchup further to 3.4 percent in 2021. Compared to the October WEO forecast, the estimate for 2019 and the projection for 2020 represent 0.1 percentage point reductions for each year while that for 2021 is 0.2 percentage point lower. A more subdued growth forecast for India (discussed below) accounts for the lion’s share of the downward revisions. The global growth trajectory reflects a sharp decline followed by a return closer to historical norms for a group of underperforming and stressed emerging market and developing economies (including Brazil, India, Mexico, Russia, and Turkey). The growth profile also relies on relatively healthy emerging market economies maintaining their robust performance even as advanced economies and China continue to slow gradually toward their potential growth rates. The effects of substantial monetary easing across advanced and emerging market economies in 2019 are expected to continue working their way through the global economy in 2020. The global growth estimate for 2019 and projection for 2020 would have been 0.5 percentage point lower in each year without this monetary stimulus. The global recovery is projected to be accompanied by a pickup in trade growth (albeit more modest than forecast in October), reflecting a recovery in domestic demand and investment in particular, as wellas the fading of some temporary drags in the auto and tech sectors. These outcomes depend to an important extent on avoiding further escalation in the US-China trade tensions (and, more broadly, on preventing a further worsening of US-China economic relations, including around tech supply chains), averting a no-deal Brexit, and the economic ramifications of social unrest and geopolitical tensions remaining contained. 4
VENDREDI 24 JANVIER 2020 BIZWEEK ÉDITION 274 Kristalina Georgieva, Managing Director, International Monetary Fund (IMF) Peterson Institute for International Economics, Washington, D.C. January 17, 2020 POST SCRIPTUM THE FINANCIAL SECTOR IN THE 2020S Building a More Inclusive System in the New Decade The expansion of financial services in an economy can reduce income inequality but beyond a certain point it tends to have the opposite effect, according to the International Monetary Fund. once the financial sector surpasses a certain size threshold relative to the economy, its growth typically exacerbates inequality, IMF Managing Director Kristalina Georgieva said in a speech last Friday, following a research by IMF staff. Below is a reproduction of her speech The year is only two weeks old, but already a series of events have highlighted the shared challenges we face. In Australia, the bush fires blazing across the country are a reminder of the toll on life climate change exacts. In the Middle East, conflict and growing tensions have put an entire region on edge. On trade, an important agreement was announced this week, but much more work is ahead to heal the fractures between the world’s two largest economies. Beyond the US and China, the global trading system is in need of a significantupgrade. If I had to identify a theme at the outset of the new decade, it would be increasing uncertainty. Uncertainty that geopolitical tensions will ease and peace will prevail. Uncertainty that a trade truce will translate into lasting peace and trade reform. Uncertainty that public policy can address the frustrations and growing unrest in many countries. We know this uncertainty harms business confidence, investment, and growth. But this is not the uncertainty millions of people think about everyday. They think about the uncertainty of being able to pay a billat the end of the month. The uncertainty of their families’future health and well-being. The constant fear of falling behind. So, this morning I would like to focus on one particular driver of uncertainty — inequality —and share with you the results of our new research on the role of the financial sector in this area. Rising Inequality and the Tools to Addressit First, the good news. Income inequality between countries has declined sharply over the past two decades — led by the rise of key emerging markets in Asia. While there are certainly regions of concern, it is important to note this is the first decline in global inequality since the Industrial Revolution. However, the reality is that over the same period, within many countries, inequality has been on the rise. In the United Kingdom, for example, the top 10 percent now control nearly as much wealth as the bottom 50 percent. This situation is mirrored across much of the OECD where income and wealth inequality have reached or are near record highs. In some ways, this troubling trend is reminiscent of the early part of the 20th century — when the twin forces of technology and integration led to the first Gilded Age, the Roaring Twenties, and, ultimately, financial disaster. One issue which we did not face in the 1920s but which we face urgently today is climate change. It is often the poor and most vulnerable populations who bear the brunt of this unfolding existential challenge. The World Bank estimates that unless we alter the current climate path an additional 100 million people may be living in extreme poverty by 2030. So, we have to learnthe lessons of history while adapting them for our times. We know that excessive inequality hinders growth and hollows out a country’s foundations. It erodes trust within society and institutions. It can fuel populism and politicalupheaval. To addressinequality, many governments first turn to fiscal policies. These are, and will remain, critical tools. But too often we overlook the financial sector, which can also have a profound and long-lasting positive or negative effect on inequality. Our new staff research, launched today, shows how a well-functioning financial sector can create new opportunities for all in the decade ahead. But it also shows how a poorly managed financial sector can amplify inequality. These findings present both a warning and a call to action. If we act, and act together, we can avoid repeating the mistakes of the 1920s in the 2020s. Three Dimensions of How the Financial Sector Impacts Inequality There are three major dimensions to consider when it comes to the financial sector and inequality. a) Financial Deepening First, financial deepening — the size of the financial sector relative to a country’s entire economy. We know that it has a significant effect on a country’s economic performance. In China and India, for example, sustained financial sector growth throughout the 1990s paved the way for enormous economic gains in the 2000s. This in turn helped in lifting a billion people out of poverty. But that is not the full story. Our new research shows there is a point at which financial deepening is associated with exacerbated inequality and lessinclusive growth. Many factors drive inequality — corruption, regressive taxes, intergenerational wealth — but the connection between excessive financial deepening and inequality holds across countries. Why do we see this reversal in the impact of financial deepening on inequality ? Our thinking is that while poorer individuals benefit in the early stages of deepening, over time, the growing size and complexity of the financial sector endsup primarily helping the wealthy. The negative impact is especially visible where financial sectors are already very deep. Here, complicated financial instruments, influential lobbyists, and 5 Cont’d on page 6

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