By: Dr. M. Ray Perryman
Published in syndication January 22, 2020
The latest forecast for the global economy from the International Monetary Fund (IMF) indicates the pace of growth may increase over the next year. This pattern would not only enhance conditions in a number of countries, but also is beneficial to major trading nations such as the United States.
The October projections from the IMF were less favorable, indicating widespread slowing and growing risks that could lead to further erosion. Since that time, there has been progress on several fronts.
The trade war between the United States and China has de-escalated to some extent. Work remains to be done to ensure protection of intellectual property and removing more of the existing tariffs, for example, but there has at least been some progress. As the economies of these two nations (the world's largest) go, so goes much of the rest of the world, and a US-China trade deal will benefit most nations at least indirectly. Progress on the US-Mexico-Canada Agreement continues, which is also good for the global trade picture.
While a Brexit deal is still not finalized as I write this, it is somewhat less likely that the United Kingdom will leave the European Union with no deal at all. There are still difficulties to be worked out, but it appears that the exit will be less chaotic than feared at some points in the recent past. Trade deals will need to be negotiated with major UK trading partners (including the US), but some of the worst issues have subsided at least for now.
The IMF is projecting global growth to increase modestly from 2.9% in 2019 to 3.3% in 2020 and 3.4% in 2021. Advanced economies are projected to see growth in the 1.6% range, with the United States leading that pace and performing well above the average. Emerging market and developing economies (which includes many nations from China and India to Mexico) are projected to expand at a 4.4% rate. Developing economies typically grow more rapidly than well-established economies; they also exhibit more energy-intensive expansion, which is beneficial to the Texas oil and gas sector.
Of particular note to the United States given trade relationships, Mexico is expected to see a return to growth with 1.0% expansion projected for this year, while Canada expands at a 1.8% rate. China's growth rate is forecast to be 6.0% this year, down slightly from 2019.
Clearly, notable risks to global performance remain, but at least many are moving in the right direction. Unless we see major escalation in tensions in the Middle East, a breaking down of Brexit or US-China talks, or some major cyber incident, the global economy is set to improve over the next couple of years. Good news!