The International Monetary (IMF) Fund painted a gloomy picture of the global economy on Monday. It further trimmed its 2020 global growth forecast to 3.3 percent in 2020 citing reasons for lower growth in India. The IMF also warned that the global outlook remains sluggish with no clear signs of recovery in the near term.

The global economy is slowing at a faster rate than expected and the IMF had earlier cited reasons that slowdown in China coupled with sharper-than-expected slowdowns in India and other emerging economies could take a toll on the world's economic health. The Washington-based world body also revised and lowered the global growth forecast for 2019.

A gloomy picture

IMF
IMF Reuters

The IMF showed its growing concern over the slowing global economy. On Monday, it once again lowered its global growth forecast to 3.3 percent in 2020 from 2.9 percent in 2019. This will be the slowest pace since the global financial crisis a decade ago. The organization also cut global growth by 0.1 percent for both 2019 and 2020.

For 2021, the IMF has forecast a slightly better growth of 3.4 percent. However, that too is a downward revision of 0.2 percent from the forecast earlier made in October. The body said that the downward revision was mainly because of a sharper-than-expected slowdown in India. In a huge downward revision, IMF cut India's growth forecast to 4.8 percent from 6.1 percent in 2019 projected in October last year.

Growth in India and other emerging economies a concern

The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington, U.S., April 21, 2017.
The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington, U.S., April 21, 2017. Reuters

India's GDP has been on the decline and that has been a cause of concern amid a contraction of credit and stress in the non-bank sector. The International Monetary Fund lowered India's growth forecast by 1.2 percent to 5.8 percent in 2020. However, it said that fiscal and monetary stimulus is likely to help lift India's growth to 6.5 percent once again in 2021. The IMF also lowered growth forecasts for Mexico and Chile owing to weakness in investments and social unrest, respectively. Per the IMF's new forecast, Mexico will grow a meager 1 percent in 2020

Gita Gopinath, the IMF's chief economist, in a statement, said, "The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels." Earlier, the IMF had shown concerns over China's slowing economy and the growing trade tension between the US and China and had lowered its 2019 forecast.

China-US trade deal boosting sentiments

Gita Gopinath
Gita Gopinath Wikimedia Commons

IMF said that the signing of the US-China phase one trade deal has somewhat lifted market sentiments, which last year had slowed GDP growth. However, the body cautioned that there are still tentative signs of manufacturing activity and trade slowing.

Moreover, the IMF said that it expects no further tensions to escalate between the world's two largest economies, which otherwise could further take a toll on global growth. Citing phase one trade truce, the IMF also upgraded China's by 0.2 percent to 6 percent in 2020. However, the Fund did not upgrade the USA's growth. Instead, it lowered its forecast by 0.1 percent in 2020. Besides, Euro Zone's growth too was lowered by 0.1 percent to 1.3 percent in 2020 on grounds of slowing domestic demand in Spain and manufacturing activity in Germany.