Global economy to slow in 2019 as Brexit, trade war uncertainties unfold - IMF

Source: ICIS News

2019/01/21

LONDON (ICIS)--The global economy’s expansion will slow down in 2019 as downside risks like an uncertain Brexit or trade tensions unfold, the International Monetary Fund (IMF) said on Monday.

The Washington-based body lowered its GDP growth forecasts, compared to its previous World Economic Outlook (WEO) published in October, in which it had also cut forecasts.

The global economy is expected to expand by 3.5% in 2019 and 3.6% in 2020, 0.2 and 0.1 percentage points lower than in the October forecast (see bottom table for main regions and countries).

The IMF remains concerned that the end of a 90-day truce in the US-China trade war coming to an end on 1 March could put the global economy under further strain as “raising harmful barriers” to trade could destabilise the economy further.

“High-frequency data signal subdued momentum in the fourth quarter. Outside the US, industrial production has decelerated, particularly of capital goods. Global trade growth has slowed to well below 2017 averages,” said the IMF, adding that the “true underlying impetus” could even be weaker than what the data for the fourth quarter indicates so far.

“[This is because] the headline numbers may have been lifted by import front-loading ahead of tariff hikes, as well as by an uptick in tech exports with the launch of new products. Consistent with this interpretation, purchasing managers’ indices, notably in the category of new orders, point to less buoyant expectations of future activity.”

Earlier on Monday, China published its GDP growth figures for 2018 and, although they showed growth at its weakest in 28 years, some analysts preferred to see the glass half-full, arguing that economic activity in the second half of the year had held up better than expected.

The IMF remains concerned about a disorderly UK exit from the 28-country EU, planned for 29 March and for which a withdrawal agreement is not in place yet after the country’s Parliament rejected the government’s proposal on 15 January.

In fact, the Fund said there was “substantial uncertainty” about the UK’s GDP growth forecast for 2019-2020, at 1.5%, given that “as of mid-January” the shape that Brexit will ultimately take remains uncertain, and the growth projections were done assuming that a withdrawal deal was reach for the exit date of 29 March.

The US economy will continue to growth at a healthy rate, although in 2020 it will slow down slightly as the current fiscal stimulus comes to an end, said the IMF.

“Nevertheless, the projected pace of expansion is above the US economy’s estimated potential growth rate in both years. Strong domestic demand growth will support rising imports and contribute to a widening of the US current account deficit,” it added.

However, all projections, concluded the IMF, will be subject to how countries resolve their trade differences, and whether more trade barriers are erected.

“If countries resolve their differences without raising distortive trade barriers further and market sentiment recovers, then improved confidence and easier financial conditions could reinforce each other to lift growth above the baseline forecast,” it said.

“However, the balance of risks remains skewed to the downside, as in the October WEO.

IMF growth projections
        Difference from October
World 2018 2019 2020 2019 2020
Advanced economies 2.3 2.0 1.7 -0.1 0.0
US 2.9 2.5 1.8 0.0 0.0
Eurozone 1.8 1.6 1.7 -0.3 0.0
Japan 0.9 1.1 0.5 0.2 0.2
UK 1.4 1.5 1.6 0.0 0.1
Canada 2.1 1.9 1.9 -0.1 0.1
Emerging markets 4.6 4.5 4.9 -0.2 0.0
China 6.6 6.2 6.2 0.0 0.0
India 7.3 7.5 7.7 0.1 0.0
Russia 1.7 1.6 1.7 -0.2 -0.1
Brazil 1.3 2.5 2.2 0.1 -0.1
Mexico 2.1 2.1 2.2 -0.4 -0.5
South Africa 0.8 1.4 1.7 0.0 0.0
World trade volume 4.0 4.0 4.0 0.0 -0.1

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Pictured: Beijing, 21 January; China's growth slowed to a 28-year low in 2018
Picture source: Andy Wong/AP/REX/Shutterstock