IMF: global economy in ‘synchronised slowdown’ as trade wars accelerate
▶ Fund makes another revision as trade tension and Brexit uncertainty hold back outlook
The global economy is in a “synchronised slowdown” and projected to grow 3 per cent this year, its slowest expansion since the 2008 global financial crisis, the International Monetary Fund said yesterday.
The fund’s estimate is a 0.3 percentage point downgrade from its April forecast and marks the fifth revision of the organisation’s outlook on the global economy, which grew 3.6 per cent last year. The Washington-based lender said growth is forecast to pick up to 3.4 per cent in 2020, but this is dependent on the nascent trade agreed last week between the US and China holding.
Growth would be reduced by 0.8 per cent by the end of 2020 if scheduled October and December tariffs are imposed, the fund’s chief economist Gita Gopinath said in Washington.
Removing all existing and scheduled tariffs would boost the global economy by 0.8 per cent by end 2020, she said.
The IMF forecast growth in the US will decelerate to 2.4 per cent this year and 2.1 per cent in 2020, from 2.9 per cent last year.
China is predicted to slow to 6.1 per cent this year and 5.8 per cent next year, from 6.8 per cent in 2018.
“A notable feature of the sluggish growth in 2019 is the sharp and geographically broadbased slowdown in manufacturing and global trade,” Ms Gopinath said. The downturn is driven by higher tariffs and prolonged uncertainty around trade policy, which have dented investment and demand for heavily traded capital goods.
The global economy is in a “synchronised slowdown” and projected to grow 3 per cent this year, its slowest expansion since the 2008 global financial crisis, as a result of protectionist policies and increased uncertainty related to trade and geopolitics that have strained emerging market economies, according to the International Monetary Fund.
The fund’s estimate is a 0.3 percentage point downgrade from its April forecast and is the fifth revision of the organisation’s outlook on the global economy, which grew 3.6 per cent last year. The global economy is forecast to pick up to 3.4 per cent in 2020, a 0.2 percentage point reduction from the earlier forecast. Subdued momentum in manufacturing is at the lowest in more than a decade, according to the fund. The fund’s last revision was in July.
Global growth figures for this year would have been an additional 0.5 per cent lower in the absence of monetary stimulus by central banks, which cushioned the impact of escalating US-China trade tension, the fund’s chief economist Gita Gopinath said in the 208-page World Economic Outlook report released yesterday during the annual IMF World Bank meetings in Washington, DC.
“A notable feature of the sluggish growth in 2019 is the sharp and geographically broadbased slowdown in manufacturing and global trade,” she said. The downturn is driven by higher tariffs and prolonged uncertainty surrounding trade policy, which have dented investment and demand for heavily traded capital goods.
Growth would be reduced by 0.8 per cent by the end of 2020 if scheduled October and December tariffs are imposed, Ms Gopinath said in a briefing yesterday. The removal of all existing and scheduled tariffs would boost the global economy by 0.8 per cent by end 2020, she said.
Growth will slow for the world’s two largest economies. The US economy will decelerate to 2.4 per cent, and China, which has recorded more than a decade of expansion, is forecast to slow to 6.1 per cent.
As a result of uncertainty related to escalating US-China trade tension, business confidence has ebbed, with manufacturers becoming more cautious about long-term spending and cutting back on equipment and machinery purchases. Consequently, trade volume growth globally in the first half of 2019 reached 1 per cent, the weakest level since 2012.
The IMF’s growth forecast is also based on an assumption that a Brexit deal will be agreed.
“In the absence of that, if there were to be no agreement, no-deal Brexit, that would reduce UK GDP by 3 per cent over the longer term”, Ms Gopinath said. In the medium term it would reduce UK GDP by 3 to 5 per cent “depending on how disruptive it is,” she said.
Brexit uncertainty continues to hold back investment in the UK, the world’s sixth-largest economy, which is projected to grow 1.2 per cent this year from 1.4 per cent last year, according to the fund. Exports have weakened and the pound has depreciated 4 per cent because of concern over a no-deal Brexit. The euro area is forecast to grow 1.2 per cent this year, down from 1.9 per cent in 2018.
The economies of the Middle East and Central Asia will grow 0.9 per cent this year, rising to 2.9 per cent in 2020. The forecast is 0.9 and 0.4 percentage points lower, respectively, than a forecast given for the region in April.
The downward growth revision of the region is largely because of the impact of US sanctions on Iran’s economy, which has crimped output. Iran’s economy is set to contract 9.5 per cent this year after shrinking 4.8 per cent in 2018. Inflation in Iran is projected to rise to about 36 per cent this year the fund said, from 30.5 per cent last year.
Saudi Arabia’s economy is projected to grow 0.2 per cent in 2019, according to the lender. The fund assumes that the average price of oil is an average of $61.78 per barrel in 2019 and $57.94 per barrel in 2020.
A recovery in the global economy “unlike the synchronised slowdown ... is not broad-based and is precarious,” Ms Gopinath said.
While monetary easing by central banks has supported growth, she cautioned against an environment that allows financial risks to build.
“With interest rates expected to be low for long, there is a significant risk of financial vulnerabilities growing, which makes effective macroprudential regulation imperative,” she said. “Countries should simultaneously undertake structural reforms to raise productivity, resilience, and equity.”
There is a significant risk of financial vulnerabilities growing, which makes effective macroprudential regulation imperative GITA GOPINATH IMF chief economist