IMF Cuts 2019 Global Growth Estimate To 3.3%

The International Monetary Fund, IMF’s World Economic Outlook once again downgraded global growth to 3.3 per cent for 2019, two tenths lower than the global crisis the lender forecast in January and four tenths lower than October.

And while world growth is expected to pick up in the second half of this year and may hit 3.6 per cent in 2020, many things will have to go right for that to happen, including a resolution of President Donald Trump’s trade battle with China.

The quarterly report “projects a slowdown in growth in 2019 for 70 per cent of the world economy,” IMF chief economist Gita Gopinath said in a statement, but stressed that «global recession is not in the baseline.”

The euro area is likely to slow down sharply, particularly in Germany, where the GDP forecast was cut by a half point, and Italy, which has slowed to a virtual standstill, according to the quarterly report.

Amid the turmoil over its exit from the European Union, the IMF downgraded the outlook for Britain this year and next, warning of a severe impact if London crashes out with no agreement.

Emerging economic powers China and India continue to show the highest growth rates − 6.3 per cent and 7.3 per cent, respectively. Beijing has rolled out a series of fiscal stimulus measures to counteract the hit from the US trade war as well as the clampdown on the boom in lending, but India›s growth was downgraded by two tenths of a point.

And while the recent signs that officials in Washington and Beijing are engineering a trade deal have calmed some of the nerves in financial markets, the solution is by no means certain.

The report cautions that downside risks to the outlook continue to dominate: trade tensions could flare up again, and there is risk of a «no-deal Brexit withdrawal» or persistent slowing of economic activity.

“This is a delicate moment for the global economy,» Gopinath said. “This recovery is precarious and predicated on a rebound in emerging market and developing economies,» including Argentina and Turkey.

She urged policymakers to steer clear of potential pitfalls, and warned that if «any of the major risks materialise, then the expected recoveries… may be derailed.” “Given these risks, it is imperative that costly policy mistakes are avoided,” she said, urging cooperation among governments − especially in trade conflicts − to avoid fueling uncertainty that could contribute to a slowdown. The challenge to policymakers is they have little ammunition with which to counteract a slowdown since interest rates are low and most central banks already have stopped raising or started cutting rates, while debt levels are high, crimping the ability to provide fiscal stimulus.

Gopinath told reporters there is some room to use monetary policy to support economies, as long as inflation remains low.

But critically, a “durable resolution of trade uncertainty” created by the US and China would be “very positive for global growth, she said in a press briefing, also warning against expanding the dispute to more sectors.

Leave a Reply

Your email address will not be published. Required fields are marked *