LONDON (Reuters) - The Institute of International Finance (IIF) downgraded its economic growth forecast for the United States and China on Thursday, while warning that world growth could reach its weakest since the global financial crisis.
Citing the economic impact of the coronavirus outbreak, the IIF lowered its forecast for U.S. growth this year to 1.3%, down from 2% previously, with the epicenter of weakness in the second quarter, and China to just shy of 4% from 5.9% previously.
Global growth in 2020 could conceivably approach 1%, far below the 2.6% expansion in 2019 and the weakest since the financial crisis, the IIF said.
“The range of potential outcomes is large and depends on the spread of the virus and resulting economic fall-out, all of which are highly uncertain at this stage,” IIF economists said in a report.
Aside from the world’s two largest economies, IIF cited vulnerabilities in Germany, Japan and emerging markets.
In an emergency move to shield the U.S. economy from the impact of the outbreak, the U.S. central bank on Tuesday cut rates by a half percentage point to a target range of 1.00% to 1.25%.
The Federal Reserve’s move was an opportunity to cut rates for those emerging market central banks which had so far held off out of concern their currencies may weaken, IIF said.
That was especially important in high carry, low growth countries like Mexico and South Africa and more broadly across emerging markets where growth has been weak, it added.
“Such a de facto easing cycle would help bring growth to EM and buffer the global economy from COVID-19,” IIF said.
Reporting by Tom Arnold; Editing by Alexander Smith and Chizu Nomiyama