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After disappointing growth in 2019, we began to see signs of stabilization and risk reduction, including the Phase 1 U.S.-China trade deal. In January, the IMF projected growth to strengthen from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. This projected uptick in growth is dependent on improved performance in some emerging market and developing economies.
Monetary and fiscal policy have been doing their part. In fact, monetary easing added approximately 0.5 percentage points to global growth last year. Forty-nine central banks cut rates 71 times as part of the most synchronized monetary action since the global financial crisis.
But the global economy is far from solid ground. While some uncertainties have receded, new ones have emerged. The truth is that uncertainty is becoming the new normal.
The coronavirus is our most pressing uncertainty: a global health emergency we did not anticipate in January. It is a stark reminder of how a fragile recovery could be threatened by unforeseen events. There are a number of scenarios, depending on how quickly the spread of the virus is contained. If the disruptions from the virus end quickly, we expect the Chinese economy to bounce back soon. The result would be a sharp drop in GDP growth in China in the first quarter of 2020, but only a small reduction for the entire year. Spillovers to other countries would remain relatively minor and short-lived, mostly through temporary supply chain disruptions, tourism, and travel restrictions.
However, a long-lasting and more severe outbreak would result in a sharper and more protracted growth slowdown in China. Its global impact would be amplified through more substantial supply chain disruptions and a more persistent drop in investor confidence, especially if the epidemic spreads beyond China.
Even in the best-case scenarios, however, the projected rate of global growth is still modest in too many parts of the world.
And over the medium term, growth is expected to remain below historical averages.
In this context, while some uncertainties—like disease—are out of our control, we should not create new uncertainties where we can avoid it.
I believe there are three areas where the finance ministers and central bank governors can make progress in providing more certainty about future actions during the G-20 meetings in Saudi Arabia: Trade, Climate, and Inequality. [...]