IMF Downgrades Outlook for World Economy, Citing Ongoing Trade Wars

October 15, 2019 by Dan McCue
IMF Downgrades Outlook for World Economy, Citing Ongoing Trade Wars
IMF Chief Economist Gita Gopinath.

WASHINGTON — The International Monetary Fund on Tuesday downgraded its outlook for the world economy, predicting that growth in the developed world this year, stymied by trade conflicts, will be the weakest since the 2008 financial crisis.

During a press conference Tuesday morning, IMF Chief Economist Gita Gopinath said the global economy is in a “synchronized” slowdown and is currently experiencing “a serious climbdown” from the 3.8 percent growth experienced in 2017.

The fund, an international organization comprised of 189 member countries, works to foster global financial and business cooperation and sustainable economic growth.

Gopinath said the IMF currently expects the global economy to grow by about 3 percent this year, down 0.2 percentage point from its previous forecast in July and sharply below the 3.6% growth of 2018.

For the United States this year, the IMF projects a modest 2.4% gain, down from 2.9% in 2018.

The IMF’s latest World Economic Outlook, released at the start of fall meetings of the 189-nation IMF and its sister lending organization, the World Bank, does foresee a slight rebound in 2020, “however, unlike the synchronized slowdown, this recovery is not broad based and is precarious,” Gopinath said.

In a forward Gopinath wrote for the outlook report, the economists says the situation is a consequence of “rising trade barriers, elevated uncertainty surrounding trade and geopolitics, macroeconomic strains in several emerging market economies, and structural factors, such as low productivity growth and aging demographics in advanced economies.

Of the modest uptick the IMF says is coming in 2020, “about half” will be driven by “recoveries or shallower recessions in stressed emerging markets, such as Turkey, Argentina, and Iran, and the rest by recoveries in countries where growth slowed significantly in 2019, relative to 2018, such as Brazil, Mexico, India, Russia, and Saudi Arabia,” the report says.

The new forecast predicts global growth of 3% this year, Next year, the fund foresees a rebound for the world economy to 3.4% growth but a further slowdown in the United States to 2.1%, far below the 3% growth the Trump administration projects.

But Gopinath and her fellow economists caution these slight gains might not be realized.

“With a synchronized slowdown and uncertain recovery, the global outlook remains precarious,” Gopinath said in the report. “At 3% growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions.

“Besides supporting growth, such actions can also help catalyze needed cooperative solutions to improve the global trading system. Moreover, it is essential that countries continue to work together to address major issues, such as climate change, international taxation, corruption, and cybersecurity,” she wrote.

The release of the annual global outlook report comes at a precarious, unpredictable moment in the world economy.

Last week, the United States and China reached a temporary cease-fire in their trade fight when President Donald Trump agreed to suspend a tariff hike on $250 billion of Chinese products that was to take effect this week.

But no formal agreement has been reached and many issues between the two enormous economies remain to be resolved.

And on Monday, days after appearing to acquiesce to a Turkish invasion of northern Syria aimed at routing the United States’ longtime Kurdish allies, the White House reversed course, imposing economic sanctions.

In an executive order signed Monday, President Donald Trump declared that Turkey’s offensive “undermines the campaign to defeat the Islamic State of Iraq and Syria, or ISIS, endangers civilians, and further threatens to undermine the peace, security, and stability in the region.”

The order halts a $100 billion trade deal being hammered out between Ankara and Washington, raises tariffs on Turkish steel to 50% and imposes sanctions on senior Turkish officials and the country’s defense and energy ministries.

In addition to trade and geopolitical risks, the IMF envisions threats arising from a potentially disruptive exit by Britain from the European Union at the end of the month.

The Fund urged policymakers to intensify their efforts to avoid economically damaging mistakes.

“As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list,” Gopinath wrote in the report. “Such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing, and raise world growth.

“In its absence, and to fend off other risks to growth and raise potential output, economic activity should be supported in a more balanced manner. Monetary policy cannot be the only game in town and should be coupled with fiscal support where fiscal space is available and where policy is not already too expansionary,” she added.

A+
a-
  • Economy
  • International Monetary Fund
  • trade wars
  • In The News

    Health

    Voting

    Economy

    What's Targeted in Trump's Request for $9.4B in Budget Cuts From Congress

    WASHINGTON (AP) — President Donald Trump is looking to cancel $9.4 billion in spending already approved by Congress. That's just a sliver... Read More

    WASHINGTON (AP) — President Donald Trump is looking to cancel $9.4 billion in spending already approved by Congress. That's just a sliver of the $1.7 trillion that lawmakers OK'd for the budget year ending Sept. 30. The package of 21 budget rescissions will have to be approved by both chambers... Read More

    Wall Street Gains Ground Following a Solid Jobs Report

    NEW YORK (AP) — Stocks rose on Wall Street Friday following a better-than-expected report on the U.S. job market. The... Read More

    NEW YORK (AP) — Stocks rose on Wall Street Friday following a better-than-expected report on the U.S. job market. The S&P 500 index rose 1.2% in morning trading. The benchmark index remains on track to notch a second consecutive winning week. The Dow Jones Industrial Average... Read More

    Hit by Trump Trade Wars, US Economy Falls 0.2% in First Quarter, an Upgrade From Initial Estimate

    WASHINGTON (AP) — The U.S. economy shrank at a 0.2% annual pace from January through March, the first drop in... Read More

    WASHINGTON (AP) — The U.S. economy shrank at a 0.2% annual pace from January through March, the first drop in three years, as President Donald Trump’s trade wars disrupted business, the government said Thursday in a slight upgrade of its initial estimate. First-quarter growth was brought down by... Read More

    DC Mayor Seeks Business-Friendly Policies to Spark Growth Amid Loss of up to 40,000 Federal Jobs

    WASHINGTON (AP) — With the nation's capital facing a pair of overlapping budget crises, D.C. Mayor Muriel Bowser has unveiled a budget... Read More

    WASHINGTON (AP) — With the nation's capital facing a pair of overlapping budget crises, D.C. Mayor Muriel Bowser has unveiled a budget proposal that bets heavily on business-friendly policies designed to boost investment and move the city away from dependence on a dwindling number of federal jobs. “We have... Read More

    Trump Tariff Threats on EU, Apple, Send US Futures and Global Markets Skidding

    U.S. futures and global markets slumped Friday after President Donald Trump posted a pair of tariff threats on social media,... Read More

    U.S. futures and global markets slumped Friday after President Donald Trump posted a pair of tariff threats on social media, one aimed at Apple and the other at the European Union. Futures for the S&P 500 and the Dow Jones Industrial Average slid 1.5% and Nasdaq futures... Read More

    Trump Heading to Capitol Hill to Persuade Divided GOP to Unify Around His 'Big, Beautiful' Bill

    WASHINGTON (AP) — President Donald Trump is heading to Capitol Hill early Tuesday to seal the deal on his “big, beautiful bill,"... Read More

    WASHINGTON (AP) — President Donald Trump is heading to Capitol Hill early Tuesday to seal the deal on his “big, beautiful bill," using the power of political persuasion to unify divided House Republicans on the multitrillion-dollar package that is at risk of collapsing ahead of planned votes this week. Trump has implored... Read More

    News From The Well
    scroll top