Chief Economist and Director of the Research Department at the IMF Gita Gopinath responds to a question from the news media during the World Economic Outlook press conference at IMF Headquarters in Washington, DC, USA, 15 October 2019. The IMF, for the fifth time, cut the 2019 global growth forecast, as trade tensions undermine global expansion.World Economic Outlook press conference held during the IMF World Bank Annual Meetings, Washington, USA - 15 Oct 2019

The U.S.’ trade disputes with a number of countries are weighing on global growth.

The Washington-based International Monetary Fund on Tuesday released its latest economic forecasts, which show that global growth is set to slow to 3 percent this year — the weakest pace of output since the financial crisis struck. In April, it was predicting 3.3 percent.

“This is a serious climb down from 3.8 percent in 2017, when the world was in a synchronized upswing,” said Gita Gopinath, the IMF’s chief economist.

She cited rising trade barriers and elevated uncertainty surrounding trade and geopolitics as the main factors behind the worsening forecast. Trade volume growth in the first half of 2019 is at 1 percent, the weakest level since 2012.

While the U.S.’ trade battles with China have grabbed most of the headlines, it has also been involved in a number of spats with other nations as America increasingly relies on tariffs as a way of asserting its power on the global stage.

Most recently, the U.S. got the green light from the World Trade Organization to slap levies on $7.5 billion of European goods, including a number of British fashion and luxury items, as part of an argument over aviation subsidies.

And just this week the U.S. also increased tariffs on Turkish steel and halted trade negotiations in a bid to force Turkey to end its military offensive in northern Syria.

For 2020, the IMF is projecting growth to pick up to 3.4 percent, although this is down from its previous estimate of 3.6 percent.

The agency cautioned, however, that “with uncertainty about prospects for several of these countries, a projected slowdown in China and the United States, and prominent downside risks, a much more subdued pace of global activity could well materialize.”

It also stressed that without the monetary easing efforts of central banks in advanced nations, global growth would be lower by 0.5 percentage points in 2019 and 2020.

“This stimulus has therefore helped offset the negative impact of U.S.-China trade tensions, which is estimated to cumulatively reduce the level of global GDP in 2020 by 0.8 percent,” added Gopinath, who warned that with central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot.

Breaking down the forecast, the IMF found that in the U.S., trade-related uncertainty has had negative effects on investment, but employment and consumption continue to be robust, buoyed also by policy stimulus.

In the euro area, growth was downgraded due to weak exports, while Brexit-related uncertainty continues to weaken the U.K.’s economy.

Some of the biggest downward revisions for growth, however, were for advanced economies in Asia, including Hong Kong, Korea and Singapore, with a common factor being their exposure to slowing growth in China and spillovers from U.S.-China trade tensions.

For all large emerging market and developing economies, growth in 2019 has also been revised down, in part due to trade and domestic policy uncertainties. In China, the growth downgrade reflects not only escalating tariffs, but also slowing domestic demand following needed measures to rein in debt, the IMF said.

“To forestall such an outcome, policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to economic activity where needed,” it concluded.

“To strengthen resilience, policymakers should address financial vulnerabilities that pose risks to growth in the medium term. Making growth more inclusive, which is essential for securing better economic prospects for all, should remain an overarching goal.”

Read more here:

British Business, Luxury Leaders Call New U.S. Tariffs ‘Devastating’

British Fashion Brands to Be Hit With Tariffs Later This Month

Trade War Seen Hitting Profits at ‘Business-as-Usual’ Retailers

load comments
blog comments powered by Disqus