The International Monetary Fund (IMF) on Monday (21.1.2019) cut its forecasts for global economic growth in 2019 and 2020, citing weakness in Europe and some emerging markets, and noted that failure to resolve trade disputes could further destabilize an already slowing global economy.
In its second downgrade in three months, the IMF also cited a sharper-than-expected slowdown in China's economy and the possibility of a no-deal Brexit as risks to its projections.
The lender said those factors could worsen turmoil in financial markets.
The IMF predicted the global economy would grow by 3,5% in 2019 and 3,6% in 2020, declines of 0,2 and 0,1 percentage points from its October report.
The new forecasts, released ahead of this week's gathering of world leaders and business executives in the Swiss ski resort of Davos, show policymakers may have to come up with plans to deal with the end of years of strong global growth.
Risks
“Risks to global growth are tilted to the downside. An escalation of trade tensions beyond those already incorporated in the forecast remains a key source of risk to the outlook," the IMF said in an update to its World Economic Outlook report.
“Greater trade policy uncertainty and concerns about escalation and retaliation would reduce business investment, disrupt supply chains, and curtail productivity growth. The resulting depressed outlook for corporate profitability could undermine financial market confidence and further dampen growth.
The cuts reflected signs of weakness in Europe, with export powerhouse Germany hit by new fuel emission standards for cars and Italy under market pressure due to Rome's recent budget standoff with the European Union.
Growth in the euro zone is expected to moderate to 1,8 percent in 2018 from 1,6 percent in 2019, 0.3 percentage points lower than projected three months ago, the IMF said.
Growth
The IMF also lowered its 2019 growth forecast for developing countries to 4,5%, down 0,2 percentage points from its previous projection and a slowdown from 4,7% in 2018.
"Emerging markets and developing economies have been tested by challenging external conditions in recent months amid trade tensions, rising US interest rates, a strengthening dollar, capital outflows and volatile oil prices," the IMF said.
The IMF maintained its growth projections for the United States of 2,5% this year and 1,8% in 2020, pointing to continued strength in domestic demand.
It also maintained its growth forecast for China at 6,2% in both 2019 and 2020., but said economic activity could miss expectations if trade tensions persist, even with state efforts to stimulate growth by boosting fiscal spending and bank lending.
Britain is expected to achieve 1,5% growth this year, although there is uncertainty over the projection, which is based on the assumption of an orderly exit from the EU, the IMF said.
The rare bright spot was Japan, with the IMF revising its forecast by 0,2 percentage points to 1,1% this year due to an expected boost from government spending measures, which are aimed at offsetting a scheduled sales tax increase in October.
Cooperation, shared policy
The IMF has urged policymakers to focus on policies to prevent further slowdowns, the IMF said.
"The main shared political priority is for countries to cooperatively and quickly resolve their trade disagreements and the resulting political uncertainty, rather than further raising damaging barriers and destabilizing an already slowing global economy," the international organization added.
Source: Reuters
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