IMF: global econ­omy in ‘syn­chro­nised slow­down’ as trade wars ac­cel­er­ate

▶ Fund makes another re­vi­sion as trade ten­sion and Brexit un­cer­tainty hold back out­look

The National - News - - FRONT PAGE - MASSOUD A DERHALLY Wash­ing­ton DC

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

AFP

Gita Gopinath, IMF chief econ­o­mist and di­rec­tor of the re­search depart­ment at yes­ter­day’s meet­ings in Wash­ing­ton, DC. The world econ­omy is at its weak­est since the global fi­nan­cial cri­sis, amid con­tin­u­ing trade con­flicts

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