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IMF sees no turnaround in sight as it predicts sluggish global economic growth – The Globe and Mail

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IMF Managing Director Kristalina Georgieva is seen during the annual meeting of the World Economic Forum, in Davos, Switzerland, on Jan. 20, 2020.

FABRICE COFFRINI/AFP/Getty Images

Global growth appears to have bottomed out but there is no rebound in sight and risks ranging from trade tensions to climate shocks makes the outlook uncertain, a top International Monetary Fund official said on Monday.

For 2020 and 2021, the IMF trimmed back its global growth forecasts, mostly due to a sharper-than-expected slowdown in India and other emerging markets, even as it said that a U.S.-China trade deal added to hopes the activity was bottoming out.

With trade wars weighing on exports and investment, the global economy expanded by 2.9 per cent last year, its slowest pace since the global financial crisis, despite near synchronized central bank easing that added half a percentage point to global growth.

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“We have not reached a turning point yet,” IMF Managing Director Kristalina Georgieva said told a news conference on the eve of the annual meeting of the World Economic Forum (WEF) in the Swiss ski resort of Davos. “The reality is that global growth remains sluggish.

“Just in the very first weeks of the new year we have witnessed increased geopolitical tensions in the Middle East and we have seen the dramatic impact that climate shocks could have. We saw them in Australia as well as parts of Africa.”

The IMF now sees growth at 3.3 per cent this year, below its October projections for 3.4 per cent and also cut the 2021 forecast to 3.4 per cent from 3.6 per cent.

The reductions reflect the IMF’s reassessment of economic prospects for a number of major emerging markets, notably India, where domestic demand has slowed more sharply than expected amid a contraction of credit and stress in the non-bank sector.

The IMF also said it marked down growth forecasts for Chile due to social unrest and for Mexico, due to a continued weakness in investment.

The Fund said that an easing of tensions between the United States and China, which had stunted GDP growth in 2019, had boosted market sentiment, amid “tentative” signs that trade and manufacturing were bottoming out.

BOOST FOR CHINA, NOT U.S.

The Fund’s cautious outlook assumes that there are no additional flare-ups in U.S.-China trade tensions but Georgieva warned that the root cause of the problem is not yet fixed.

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“The underlying causes of trade tensions and the fundamental issues of reform of the trade system are still with us.”

The IMF upgraded China’s 2020 growth forecast by 0.2 percentage point to 6.0 per cent because the U.S. trade deal included a partial tariff reduction and canceled tariffs on Chinese consumer goods that had been scheduled for December. These tariffs had been built into the IMF’s previous forecasts.

But the Fund did not give a boost to its U.S. growth forecast for China’s pledges to increase purchases of U.S. goods and services by $200 billion over two years. Instead, the IMF said 2020 U.S. growth would be 0.1 percentage point lower than forecast in October, at 2.0 per cent because of the fading stimulus effects from 2017 tax cuts and the Federal Reserve’s monetary easing.

Economic growth in Canada is forecast to be 1.8 per cent in 2020 and 2021, unchanged from projections made in October.

Eurozone growth also was marked down 0.1 percentage point from October, to 1.3 per cent for 2020, largely due to a manufacturing contraction in Germany and decelerating domestic demand in Spain.

India saw a sharp, 1.2 percentage point cut to its 2020 growth forecast to 5.8 per cent, the IMF’s biggest markdown for any emerging market, because of the domestic credit crunch. Monetary and fiscal stimulus is expected to lift India’s growth rate back to 6.5 per cent in 2021, although this is still 0.9 percentage point lower than forecast in October.

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Other emerging markets saw forecast downgrades, the IMF said, including Chile, which has been hit by social unrest. Mexico will grow just 1.0 per cent in 2020, down from 1.3 per cent forecast in October.

With files from The Associated Press

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Economy

China Wants Everyone to Trade In Their Old Cars, Fridges to Help Save Its Economy

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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.

That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.

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Economy

German Business Outlook Hits One-Year High as Economy Heals

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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.

An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.

“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”

A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.

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There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.

Even so, the start of the year “didn’t go great,” according to Fuest.

“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”

Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.

“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”

Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.

–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.

(Updates with more comments from Fuest starting in sixth paragraph.)

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Parallel economy: How Russia is defying the West’s boycott

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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.

Officially, Apple does not sell its products in Russia.

The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.

But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.

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Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.

Zoya bought the watch without a moment’s delay.

The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.

“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.

“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”

Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.

But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.

Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.

The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.

 

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