The IMF Economic Outlook

By at 26 January, 2020, 11:43 am

The latest outlook shows global GDP rebounding, and U.S. GDP slowing

by Raymond J. Keating-

The International Monetary Fund (IMF) just released the latest update to its World Economic Outlook. As usual with the IMF, there are issues that raise questions, but one issue actually is substantive and striking, and that pertains to projections regarding U.S. economic growth.

The good news is that the IMF is projecting that global economic growth is going to accelerate over the coming two years. The IMF estimates that 2019 global growth came in at 2.9 percent, but expects real growth to step up to 3.3 percent in 2020 and 3.4 percent in 2021. The bad news related to these specific projections is that they have been slightly reduced – by 0.1 percentage point for 2019 and 2020, and 0.2 for 2021 – from the IMF’s October estimates.

But the news regarding the United States should be sobering to the business community and those making and concerned with public policy. The IMF declares:

“In the United States, growth is expected to moderate from 2.3 percent in 2019 to 2 percent in 2020 and decline further to 1.7 percent in 2021 (0.1 percentage point lower for 2020 compared to the October WEO).”

Of course, the outlook is troubling in two ways. First, real GDP growth at these levels remains well below the historic average in the U.S. during the post-World-War-II era (3.2 percent), and comes up woefully short of the average growth during non-recession years (4.4 percent). Second, it speaks to U.S. growth lagging behind the world, rather than being a growth leader.

In terms of downside risks noted by the IMF, one is noted:

“Higher tariff barriers between the United States and its trading partners, notably China, have hurt business sentiment and compounded cyclical and structural slowdowns underway in many economies over the past year. The disputes have extended to technology, imperiling global supply chains. The rationale for protectionist acts has expanded to include national security or currency grounds. Prospects for a durable resolution to trade and technology tensions remain elusive, despite sporadic favorable news on ongoing negotiations. Further deterioration in economic relations between the United States and its trading partners (seen, for example, in frictions between the United States and the European Union), or in trade ties involving other countries, could undermine the nascent bottoming out of global manufacturing and trade, leading global growth to fall short of the baseline.”

This is an important point. When looking at GDP data over the past two years, it’s clear that basically no growth in U.S. exports and little import growth have directly shaved at least 0.5 percentage points off of the U.S. growth rate, but the damage is larger given that trade negatives and uncertainties have played a key role in the recent decline in business investment.

Returning the U.S. to its proper position as a global leader in terms of economic growth means that all major policy areas need to be pointed in a pro-growth direction, and that very much includes a return to U.S. global leadership on free trade.

The signing of USMCA this week by President Trump is a step in the right direction that will benefit small businesses, investment and our economy. Still, much works remains on the U.S. trading relationship with China, as well as the pursuit of productive trade agreements with other nations across the globe.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


News and Media Releases