WASHINGTON/SANTIAGO : The International Monetary Fund on Tuesday cut its forecast for global growth this year and next, warning that further U.S.-China tariffs or a disorderly exit for Britain from the European union could further slow growth, weaken investment and disrupt supply chains.
The IMF said downside risks had intensified and it now expected global economic growth of 3.2% in 2019 and 3.5% in 2020, a drop of 0.1 percentage point for both years from its April forecast, and its fourth downgrade since October.
Economic data so far this year and softening inflation pointed to weaker-than-expected activity, the global lender said, with trade and technology tensions and mounting disinflationary pressures posing future risks.
The IMF slashed its forecast for growth in global trade by 0.9 percentage point to 2.5% in 2019. Trade should rebound and grow by 3.7% in 2020, about 0.2 percentage point less than previously forecast.
Trade volume growth declined to around 0.5% in the first quarter, its slowest pace since 2012, it said, with the slowdown mainly hitting emerging Asian countries.
Global trade volumes fell 2.3% between October and April, the sharpest six-month decline since 2009, when the world was in the midst of the Great Recession, according to estimates by the Netherlands Bureau of Economic Policy Analysis (CPB).
The global economy was at a “delicate junction” and countries should refrain from imposing tariffs to address bilateral trade imbalances or to solve international disagreements, IMF chief economist, Gita Gopinath, said at a news conference in Santiago, Chile.
“A major downside risk to the outlook remains an escalation of trade and technology tensions that can significantly disrupt global supply chains,” she said, repeating the IMF’s estimate that tariffs imposed in 2018 and new tariffs threatened in May could reduce total world economic output by 0.5% in 2020.
Other significant risks included a surprise slowdown in China, lack of recovery in the euro zone area, a no-deal Brexit and an escalation of geopolitical tensions, she said.
“We do not have a recession in our baseline, but … there are significant downside risks,” she said. “The recovery relies on recoveries in stressed emerging and developing economies, and so there is significant uncertainty around that.”
The IMF warned in its quarterly report that further U.S.-China tariffs, U.S. auto tariffs, or a no-deal Brexit could erode confidence, weaken investment, dislocate global supply chains and severely slow global growth below the baseline.
