Amid trade wars and Brexit, IMF again reduces growth expectations

Global lender fears that uncertain US-China ties and an unresolved UK departure from the EU pose major economic risks.

    IMF Chief Economist Gita Gopinath speaks in her office during the spring meetings of the World Bank Group and IMF in Washington [James Lawler Duggan/Reuters]
    IMF Chief Economist Gita Gopinath speaks in her office during the spring meetings of the World Bank Group and IMF in Washington [James Lawler Duggan/Reuters]

    The International Monetary Fund has lowered its forecast for global growth this year and next, citing United States-China tariffs, auto tariffs and a chaotic Brexit. In its fourth downgrade since October, the IMF said the combination of factors could further slow growth by weakening investment and disrupting supply chains.

    The IMF on Tuesday said in its outlook report - presented in Santiago, Chile, by Chief Economist Gita Gopinath - that downside risks had intensified. It now expects global economic growth of 3.2 percent in 2019 and 3.5 percent in 2020 - a drop of 0.1 percentage point for both years from its April forecast.

    The global lender said that both economic data released so far this year and generally softening inflation pointed to weaker-than-expected global activity. Trade and technology tensions - along with mounting disinflationary pressures - pose substantial future risks.

    The IMF slashed its forecast for global trade growth by 0.9 percentage point to 2.5 percent in 2019. Trade should rebound and grow by 3.7 percent in 2020, about 0.2 percentage point less than previously forecast. Trade volume growth declined to around 0.5 percent in the first quarter, it said, with the slowdown mainly hitting emerging Asian countries.

    "The principal risk factor to the global economy is that adverse developments - including further US-China tariffs, US auto tariffs, or a no-deal Brexit - sap confidence, weaken investment, dislocate global supply chains and severely slow global growth below the baseline," the IMF said.

    Weak trade prospects were creating headwinds for investment, and business sentiment was particularly pessimistic about new orders, although attitudes in the services sector had proven resilient, bolstering employment and consumer confidence.

    Other risks, including Middle East tensions in the Gulf, had picked up in recent months, and civil strife in many countries raised the spectre of "horrific humanitarian costs, migration strains ... and higher volatility in commodity markets".

    The IMF said growth was better than expected in advanced economies like the United States, and one-off factors that had throttled growth in the eurozone were fading as anticipated.

    The IMF raised its forecast for US economic growth to 2.6 percent in 2019, but left its 2020 forecast for 1.9 percent growth unchanged. It said expectations that the US Federal Reserve will cut interest rates impacted its projections.

    It lifted its growth forecast for the euro area to 1.6 percent in 2020, leaving the 2019 growth outlook unchanged at 1.3 percent.

    Trade tensions in Asia-Pacific

    At the same time, activity across emerging market and developing economies in Asia was disappointing, and second-quarter indicators for China suggested weaker activity there, the IMF said.

    Escalating US tariffs and weakening external demand were pressuring China's economy, which was already in the midst of a structural slowdown. China's economy was now expected to grow 6.2 percent in 2019 and 6.0 percent in 2020, a 0.1 percentage point drop for each year, the IMF said.

    The IMF also cut its forecast for growth in emerging markets and developing economies to 4.1 percent in 2019 and 4.7 percent in 2020. It slashed the forecast for Latin America and the Caribbean downward by 0.8 percentage point to just 0.6 percent in 2019, reflecting downgrades to the forecasts for Brazil, Mexico and Argentina.

    Venezuela's economy is expected to shrink about 35 percent in 2019.

    Russia also had a weak first quarter, the IMF said, revising downward its forecast for economic output in the Commonwealth of Independent States by 0.3 percentage point to 1.9 percent in 2019.

    Slower global growth and the drop in inflation across advanced and emerging market economies had revived the risk of disinflation, the IMF said, warning that missteps in macroeconomic policies could have a severely debilitating effect on sentiment, growth and job creation.

    The fund urged countries to work at the multilateral level to reduce trade tensions and end uncertainty about the status of long-standing trade agreements between Britain and the EU, and between the US, Mexico and Canada.

    "Countries should not use tariffs to target bilateral trade balances or as a substitute for dialogue to pressure others for reforms," it said.

    It also called for efforts to ensure continued enforcement of existing World Trade Organization rules, resolve the deadlock over its appellate body, and modernise WTO rules to cover digital services, subsidies and technology transfer.

    SOURCE: Al Jazeera and news agencies