IMF says policy ‘missteps’ on trade and Brexit could derail a projected rebound
THE INTERNATIONAL Monetary Fund further reduced its global growth outlook, already the lowest since the financial crisis, and suggested that policy “missteps” on trade and Brexit could derail a projected rebound.
The world economy will expand 3.2 percent this year and 3.5 percent next year, both down 0.1 percentage point from April projections, the fund said in its latest quarterly World Economic Outlook released yesterday in Washington.
A rate of 3.3 percent or lower would be the weakest since 2009. The IMF also slashed expectations for growth in the global volume of trade in goods and services, reducing its estimate by 0.9 points to 2.5 percent in 2019.
“The projected growth pick-up in 2020 is precarious, presuming stabilisation in currently stressed emerging market and developing economies and progress toward resolving trade policy differences,” the IMF said.
The warnings about the brittle state of the world economy follow weaker readings on China’s growth and come just before US GDP data due this week, which are forecast to show growth cooled in the second quarter.
Central banks have been monitoring trade tensions and slowing growth globally. The Federal Reserve is poised to cut interest rates at the end of this month for the first time in more than a decade.
Since the IMF’s last forecast in April, the Trump administration has increased tariffs on Chinese imports sharply – with China responding in kind – though the US and China agreed in late June to resume talks and avoid more tariffs.
While the IMF saw global trade slowing this year more significantly as a result of the trade tensions, it predicted a bounce back to 3.7 percent growth in volumes in 2020, the same pace as 2018.
“The principal risk factor to the global economy is that adverse developments – including further US-China tariffs, US car 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.
The IMF cut China growth estimates to 6.2 percent this year and raised a 3.1 percent annualised pace in the first quarter, according to a survey of economists.
The IMF said the risks facing the global economy included trade tensions denting investment, the continuing impact of low interest rates on investors’ risk appetite and disinflationary pressures that would make servicing debt harder, and constrain central banks’ ability to use monetary policy in downturns.
Trade was also a main concern last week in the IMF’s annual External Sector Report, with chief economist Gita Gopinath warning that such conflicts are weighing on the global economy.
“It’s absolutely urgent to end these trade wars as soon as possible, to not escalate, and also to roll back the tariffs in place,” Gopinath said in an interview.
In the UK, a six-month Brexit extension announced in April “provided some initial reprieve,” the IMF said. The fund raised its 2019 growth estimate for the economy by 0.1 point to 1.3 percent, but the forecast assumes an “orderly Brexit” and the ultimate form of the transition is “highly uncertain.”