IMF cuts global economy outlook to 3%

The IMF cut its global economic forecast for this year to 3% but in 2020 this will rise to 3.4%.

Hanna Ziady had the news for CNN:

Next year’s recovery in the global economy will be slightly weaker than expected, and US growth will continue to slow, the International Monetary Fund said Tuesday.

The IMF trimmed its global growth forecast for 2020 by 0.1 percentage points to 3.4%, saying that rising trade and geopolitical tensions had put economies in a “precarious” position. It expects growth of 3% this year, the weakest expansion since the global financial crisis.

“As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list,” the IMF said in its October World Economic Outlook. “Such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing, and raise world growth,” it said.

The United States is one of only a handful of economies with a rosier outlook for 2020 than when the IMF last compiled its forecasts in July.

The IMF now expects the American economy to grow by 2.1% next year, a 0.2 percentage point improvement from the previous forecast but considerably weaker than the 4% rate President Donald Trump promised earlier in his presidency. And it’s still slower than US growth of 2.4% the IMF expects in 2019.

Stimulus from a recent two-year federal budget deal and the Federal Reserve’s rate cuts would offset the “fading effects” of earlier tax cuts, but uncertainty over trade policy would hamper US growth, the IMF said.

David Lawder and Andrea Shalal reported for Reuters:

The U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, the International Monetary Fund warned on Tuesday, but said output would rebound if their dueling tariffs were removed.

The IMF said its latest World Economic Outlook projections here show 2019 GDP growth at 3.0%, down from 3.2% in a July forecast, largely due to increasing fallout from global trade friction.

The forecasts set a gloomy backdrop for the IMF and World Bank annual meetings this week in Washington, the first for the Fund’s new managing director, Kristalina Georgieva. She is inheriting a range of problems, from stagnating trade to unrest in Ecuador and political backlash in Argentina over IMF-mandated austerity programs.

Without a nearly simultaneous easing of monetary policy by major central banks, IMF chief economist Gita Gopinath said global growth would be half a percentage point lower in 2019 — at 2.5%, teetering on the edge of widespread recession.

“The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,” Gopinath said.

The Financial Times’ Chris Giles noted the IMF had no good news for the world’s biggest economies:

The global “big four” economies of China, the US, the eurozone and Japan will see no improvement in their growth rates over the next five years, it predicted.  The Chinese economy, now the world’s largest, will slow gradually from its 2019 growth rate of 6.1 per cent, reaching 5.5 per cent by 2024. The forecast for 2019 was cut by 0.2 percentage points from April this year.  In the US, the fund expects a further slowdown from 2.4 per cent this year to 2.1 per cent in the election year of 2020 — well below Mr Trump’s promise to maintain expansion above 3 per cent a year. Given the weakness of the German economy, which is suffering from deep stress in its automotive sector, the eurozone is expected to expand only 1.2 per cent this year, rising slightly to 1.4 per cent in 2020.  Downgrades were widespread even in countries far removed from the US-China trade war. In sub-Saharan Africa, for example, more than half of the countries are expected this year to post per capita growth below the median levels of the past 25 years. 

The IMF cautioned that it was more likely than not to downgrade the forecasts again in future. 

“The divergence between manufacturing and services has persisted for an atypically long duration, which raises concerns of whether and when weakness in manufacturing may spill over into the services sector,” it said.