The global economy faced sluggish growth in 2019 due to factors ranging from trade wars, weakened manufacturing activity, geopolitical tensions to investment decisions and low demand.
The pace of global economic activity remains weak with the manufacturing sector being hit the most ever since the global financial crisis. According to the World Economic Forum reports, global growth was forecast at 3.2% in 2019, picking up to 3.5% in 2020. GDP releases so far this year and softening inflation have pointed towards a weaker global activity.
China’s economic growth dropped last quarter to its lowest in nearly three decades as the economy is facing repercussions from the trade war with the United States. The country’s GDP grew by 6% in the three months to September 30, the weakest quarterly growth rate ever since 1992.
This has impacted the capital available for the ambitious OBOR project and also many countries (Maldives, Sri Lanka etc) are in the process of reviewing their free trade agreement with China.
The pace of fixed asset investment also slipped to its lowest in nearly two decades which is in turn leading to a crunch of import demand especially from economies that are dependent on Chinese services.
However, despite real GDP growth falling in 2019, Chinese authorities are working on a large monetary and fiscal stimulus package to stimulate growth.
The International Monetary Fund also said that India’s government must take urgent and quick steps to reverse the economic slowdown. It slashed India’s economic growth projection for 2019 to 6.1% but said that it might pick up to 7 % in 2020.
The Asian Development Bank (ADB) also trimmed its forecast for India’s economic growth in 2019-20 to 5.1% saying consumption was affected by slow job growth and rural distress aggravated by poor harvest.
While the RBI also lowered its GDP growth forecast for 2019-20 from 6.1% to 5% on December 5.
However, the government is taking measures to boost consumption expenditure and reduce taxes to revive the economy.
The US economy had a moderate pace of expansion as the year ended as GDP grew at a 2.1% annualized rate in its third estimate of third-quarter which was unrevised from last month’s estimate.
The business sentiment, investment activity and exports remained dull but consumer spending was strong. The Federal Reserve indicated that it would keep rates unchanged in 2020 and expects growth at 2% in 2020. With the presidential elections in November next year, any fiscal measure is difficult to implement.
A possible trade deal with Britain, China and India can, however, help the economy boost the GDP while also revising the economy’s growth rate.
The growth and economic revival of the global economy mainly depend on the US and China deals and negotiations and reaching a sustainable respite in their 20-month trade war while also easing of Brexit uncertainty.
Overall, the year 2020 is beginning with positive signs of revival and the strength of recovery depends on key global risks and negotiations, both economic and geo-political.