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Advanced and Regional Economies

The latest boom in global investment, trade and industrial production faded in 2019 under the impact of capacity constraints in advanced economies, rising global protectionism and high global debt. In particular, the trade conflict between the US and China hurt business and investor sentiment around the world. As a result, global economic growth, which was somewhat robust in 2018, became moderate in 2019.

In response to the declining economic growth, policymakers in many countries started providing more monetary and fiscal stimulus. Economic risks remained elevated in 2019, but not high enough to trigger a global recession. In fact, uncertainties surrounding global trade and Brexit started subsiding at the end of 2019 after increased likelihood of a phase-one trade deal between the US and China and a conclusive victory of the conservative government in the UK election in December 2019. 

Advanced and Emerging Economies

Advanced economies grew at a modest pace in 2019, after recording a moderate growth rate in 2018. Their economic slowdown in 2019 reflected a deterioration in fixed investment, industrial production – particularly manufacturing – and global trade, as well as ageing demographics. Emerging economies also recorded a broad-based slowdown in real GDP growth in 2019. The key reasons for the weaker growth were the impact of the US-China trade conflict on supply chains, soft oil and commodity prices, and the lack, or poor implementation, of structural reforms.

Regional Economies

The Saudi government’s reforms to diversify and transform the economy under Vision 2030, along with greater public spending and investment, boosted Saudi non-oil sector growth in 2019. However, the Vienna Alliance’s decision to cut OPEC and non-OPEC productions quotas to stabilize oil prices worked as a major drag on the economy. There were also some production losses from the attack in September 2019 on oil facilities, though oil production was restored earlier than expected. Consequently, Saudi Arabia experienced only modest economic growth in 2019, down from the moderate economic expansion recorded in 2018.
 
In the US, economic growth eased in 2019 relative to 2018. A sharp decline in capital spending growth, partly stemming from the prolonged trade policy uncertainty, diminishing fiscal stimulus, and a fall in exports caused by new tariffs on US-China trade flows contributed to the slowdown in US economic growth in 2019. Capacity constraints also remained a drag on economic growth. The US Federal Reserve Bank reversed its monetary policy stance in 2019 and cut interest rates three times in response to the slowing domestic and global economic growth and elevated downside risks. As a result, financial conditions improved in the US in 2019.
 
China’s long-term, structural economic slowdown continued in 2019. Almost all major sector of the economy including industrial production, private consumption, exports, construction activity and auto sales slowed in 2019. The slowdown was driven primarily by the government’s deleveraging drive that dampened domestic demand, as well as the trade conflict with the US that hit exports and heightened uncertainty for businesses. The Chinese government implemented a stimulus package dominated by tax and business fees cuts and shifted bank lending to small and medium-sized private firms. The stimulus package partially offset the adverse impact of the US-China trade conflict on the Chinese economy. 
 
The Eurozone recorded a slowdown in economic growth in 2019, after growing above its potential growth rate in 2018. All major economies of the Eurozone experienced a decline in economic growth in 2019. Exports and manufacturing were the principal source of weakness, struggling in the face of multiple headwinds, including global trade protectionism, the chaos around Brexit and Italy’s political issues. High uncertainty also depressed private consumption growth. However, investment proved surprisingly resilient to high uncertainty, possibly because of a highly accommodative monetary policy of the European Central Bank (ECB) and somewhat easy financial conditions. 

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