World Economy Slowing Amid Trade Tensions: IMF
Tired of hearing about the concerning implications of ongoing trade wars? Well, sorry to say, but there’s more unfortunate news.
The International Monetary Fund (IMF) released its updated World Economic Outlook at the start of the World Economic Forum in Davos, Switzerland and issued a warning that the global economy is slowing more than expected. And the situation could get even worse if trade conflicts continue.
The agency cut its global growth forecast for 2019 to 3.5% from the 3.7% projected in October 2018.
“After two years of solid expansion, the world economy is growing more slowly than expected, and risks are rising,” Christine Lagarde, IMF managing director, said during a press conference in Davos.
While Lagarde stressed that the projection doesn’t mean a global recession is around the corner, the “risk of a sharper decline in global growth has certainly increased.”
Though the forecast may have only dropped slightly, the projection reflects growing political and economic uncertainty, which could spell more trouble down the road if situations are not remedied. That’s why, said Lagarde, it’s imperative that policymakers around the world “address remaining vulnerabilities, and be ready if a serious slowdown were to materialize.”
“Even as the economy continues to move ahead, it is facing significantly higher risks,” explained Lagarde.
The Risks
Unsurprisingly, the IMF identified the escalation of trade tensions, particularly the US and China dispute, as a significant contributing factor to its outlook.
The US and China, which have imposed billions of dollars of tariffs on each other’s goods, have set a deadline of March 2 for their ceasefire negotiations on additional duties. And while there is uncertainty about how talks between the two will end, the conflict is already having an impact on the growth of either country’s economy.
China has already announced that its economic growth came in at 6.6% in 2018 — the lowest rate since 1990. Meanwhile the IMF forecast for the US is that an “unwinding of fiscal stimulus” will result in growth falling to 2.5% in 2019, which will drop further to 1.8% in 2020.
The possibility that the United Kingdom might exit the European Union without a deal in place, which became all the more possible after the UK Parliament overwhelmingly rejected Prime Minister Theresa May’s Brexit proposal the other week, is also a major risk factor. According to the IMF, a no-deal withdrawal is a “potential trigger” that could “spark a further deterioration in risk sentiment with adverse growth implications.”
Other Reports
The IMF isn’t alone in its prediction of a global economy that’s slowing down.
PwC’s recently released the findings of its annual survey of global CEOs, which revealed a record increase when it comes to pessimism about the global economy. The survey found that 30% of business leaders expect global expansion to weaken in the next 12 months — a substantial increase from just 5% last year.
The United Nations also announced its economic projections, saying that signs indicate global growth has “peaked.” The UN’s forecast is for 3% annual growth in 2019 and 2020, down slightly from 3.1% in 2018. (The reason for the difference between the outlooks from the IMF and UN is because the two use different methodologies.)
In its World Economic Situation and Prospects 2019 report, the UN said that while global growth continues, the “pace of expansion masks an increase in downside risks that could potentially exacerbate development challenges in many parts of the world.” According to the UN, those risks include waning support for multilateralism, ongoing trade conflicts, and increased debt.
Despite their unique findings, there’s a clear common theme between the various reports: political and economic uncertainty is a growing concern that could further destabilize the slowing economy if world leaders continue down the path of global divisiveness.
