So, the “2020 optimist club” has gained another “influential” member - the IMF in has confirmed its updated forecast that the global economic growth will accelerate to 3.3% compared to 2.9% last year. This will happen due to the recovery in world trade growth, which last year posted a measly increase of only 1% versus 3.7% in 2018. According to the experts, the key drivers of the recovery is the trade truce between China and the US, the resumption of QE by the ECB last September and quasi-QE from the Fed (which has already exceeded more than $400 billion!), which is touted as a remedy to liquidity bottlenecks in the repo market and considered (mostly by the Fed) as temporary measures.

 The IMF said that the growth of the two largest economies in the world will slow down in 2020 - to 2.0% in the US and to 6.0% in China. An interesting observation is that without the “first phase” deal, the forecast for the growth of the Chinese economy would be much smaller, i.e. the agency’s experts believe that the Chinese economy was less resistant to the trade war.

Bank of Japan meeting

The Bank of Japan left the policy settings unchanged but remarks of the head of the Central Bank was in tune with the comments of IMF experts. As the global rebound is expected to lift the Japanese economy too, the BoJ is now feeling much less pressure to dive deeper into negatives rates, but stubbornly low inflation ensures that status quo is the best that the Central Bank can offer to commercial banks and Japanese savers.

The revised quarterly forecasts for 2020 were slightly better than the previous ones: in the fiscal year 2020, the growth is expected at 0.9% compared to the previous forecast at 0.7%, however, inflation forecasts for the most part have not changed. With the fiscal impulse of $122 billion planned in 2020, no further rate cuts or QE is a cinch.

Symmetric inflation target

The three major world central banks — the Fed, the ECB, and the Bank of Japan basically synchronized their plans for 2020 — all three banks are likely to maintain policy settings at the current level throughout 2020, if economic growth is not extraordinary. An indirect confirmation of this is intentional of the Fed and the ECN policy makers to revise the concept of "normal inflation" and "price stability" by introducing a new term - "symmetrical inflation target". This term means that the past normal range of inflation (“2% or slightly lower”) should be superseded by a broader range (“slightly lower than 2% - slightly higher than 2%”). By expanding this range, the policymakers basically acknowledge that spurring inflation growth is more difficult (and probably expensive in terms of side effects) than suppressing it. In other words, central bank officials will let inflation run above 2% to make sure it gained enough momentum. In the context of the current sluggish inflation rate in developed economies it means that the central banks raising rates is a relatively distant future.

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