IMF Expects a Modest Pickup of Global GDP Growth in 2020

Bank of Indonesia (BI) left its policy rate unchanged at 5.0% for the third consecutive meeting in January. In 2019, BI lowered its policy rate by a total of 4 times. BI noted that it will monitor domestic and global economic development to maintain controlled inflation and external stability as well as to support economic growth momentum. Despite some optimism surrounding the Phase 1 Trade Deal which BI highlighted will reduced global financial market uncertainty, where global recovery outlook has also strengthened its domestic economic growth momentum, BI also cautioned that geopolitical risks continue to demand attention. We believe the focus of BI’s monetary policy stance in 2020 will still be on supporting economic growth. We expect there will be another rate cut by BI in 2020 if its GDP growth continues to slow down further, especially when there are uncertainties on the external front including geopolitical tension and Brexit, as well as possible renewed escalation of trade war between US and China.

The International Monetary Fund (IMF) revised downward its global GDP growth by 0.1ppt for 2019 which expanded by 2.9% from its previous projection of 3.0% in the October WEO forecast. The IMF has trimmed down the global GDP growth in 2019 six times since its initial target of 3.9%. The IMF guided that the downward revision was mainly due to the “negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years”. As the growth momentum in the global economy starts to recover only slowly, the IMF has also revised downward its global growth projection by 0.1 percentage point from initial target of 3.4% to 3.3% in 2020, with the expectation of the pickup in trade growth, reflected from a rebound in domestic demand, investment together with waning hindrances in the auto and tech sectors. Nevertheless, we expect global growth will remain tilted to the downside on the possibility of trade escalation between both US and China as we expect the ‘Phase two’ trade deal will only take place in 2021, possibly after the US Presidential elections in November 2020. Meanwhile, the earlier imposed of 25% tariffs on the US$250bn worth of Chinese imports have not been lowered or removed. For the ASEAN-5, the IMF also cut its 2019 GDP growth by 0.1ppt, from 4.8% in October WEO to 4.7% and foresees growth to increase slightly higher to 4.8% in 2020.

Separately, Philippines GDP growth picked up to 6.4% yoy in 4Q19 from 6.0% in the 3Q19, its highest growth since 1Q18, mainly supported by infrastructure spending by the Government. Nevertheless, for full year 2019, Philippines GDP growth slowed to 5.9% yoy after rising by 6.2% in 2018, the slowest annual GDP growth since 2011.

Source: Affin Hwang Research - 24 Jan 2020