WASHINGTON: The International Monetary Fund (IMF) on Monday estimated that Pakistan’s economy would slow down to 2.4 per cent in 2020 and pick up quickly after that as stabilisation measures bear result.

Speaking at a news conference at the launch of the World Economic Outlook 2019, IMF’s economist Gian Maria Milesi-Ferrtti said Pakistani authorities remained steadfast on fiscal adjustment and the country was now picking up stability as a result. He was responding to a question as to how the renewed tension on Kashmir could impact growth prospects in India and Pakistan, put to Gita Gopinath, the IMF Economic Counsellor and Director of Research Department.

While Ms Gita parried the question, Mr Gian said the countries needed to contain tensions and focus on economic activities. He said there were good signs on the confidence front that the exchange rate was more realistically showing the economic conditions. He expressed the hope that the authorities would remain steadfast to some of the challenges like renewed regional tensions and oil prices because Pakistan was heavily reliant on oil imports.

He said that while India would have strong growth rate of 6.5pc next year, it was nevertheless lower than recent years which could not be maintained and the geopolitical tensions could take a toll on growth prospects.

Says authorities remain steadfast on fiscal adjustment and Pakistan is now picking up stability as a result

Talking positively about Pakistan’s progress on the IMF-supported economic programme, Mr Gian said Islamabad had an ambitious programme with the Fund which had exceeded “our expectations”.

He noted that the global financial flows demand was picking up for Pakistan that would help in reviving growth, adding that macroeconomic imbalances remained and oil importing countries were sensitive to global oil prices.

Earlier, talking about the World Economic Outlook, Ms Gopinath said the global economy was in a synchronised slowdown and the IMF was again downgrading growth for 2019 to 3pc, its slowest pace since the global financial crisis.

The economic growth continues to be weakened by the increasing trade barriers as well as geopolitical tensions. “We estimate that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8pc by 2020. Growth is also being weighed down by country-specific factors in several emerging market economies, and by structural forces, such as low productivity growth and aging demographics in advanced economies,” she said.

In the October economic outlook, the IMF projected a modest improvement in global growth to 3.4pc in 2020, another downward revision of 0.2pc from April projections. However, unlike the synchronised slowdown, this recovery is not broad-based and remains precarious.

The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariff and prolonged trade policy uncertainty damaging investment and demand for capital goods. In addition, the automobile industry is contracting owing to a variety of factors, such as disruptions from new emission standards in the euro area and China that have had durable effects. Overall, trade volume growth in the first half of 2019 fell to 1pc, the weakest level since 2012.

In contrast to extremely weak manufacturing and trade, the services sector continues to hold up almost across the globe. This has kept labour markets buoyant and wage growth and consumption spending healthy in advanced economies. There are, however, some initial signs of softening in the services sector in the United States and the euro area.

The monetary policy has played a significant role in supporting growth. In the absence of inflationary pressures and facing weakening activity, major central banks have appropriately eased to reduce downside risks to growth and prevent de-anchoring of inflation expectations. In the absence of such monetary stimulus, the global economic growth is estimated to be 0.5 percentage point lower in both 2019 and 2020.

This was in contrast to Pakistan’s central bank approach that has been on tightening mode since the country entered the IMF programme last year.

Ms Gopinath said that advanced economies continued to slow towards their lower long-term potential. Growth has been downgraded to 1.7pc for 2019 (compared to 2.3pc in 2018) and is projected to stay at this level in 2020. Strong labour market conditions and policy stimulus are helping offset the negative impact from weaker external demand for these economies.

Growth in emerging market and developing economies has also been revised down to 3.9pc for 2019 (compared to 4.5pc in 2018) owing in part to trade and domestic policy uncertainties, and to a structural slowdown in China.

The uptick in global growth for 2020 is driven by emerging market and developing economies that are projected to experience a growth rebound to 4.6pc. About half of this rebound is driven by recoveries or shallower recessions in stressed emerging markets, such as Argentina, Iran and Turkey, and the rest by recoveries in countries where growth slowed significantly in 2019 relative to 2018, such as Brazil, India, Mexico, Russia and Saudi Arabia. There is, however, considerable uncertainty surrounding these recoveries, especially when major economies like the US, Japan and China are expected to slow further into 2020.

Published in Dawn, October 16th, 2019