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January 22, 2019

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IMF again cuts growth outlook on trade tensions and a weak Europe

The International Monetary Fund yesterday cut its world economic growth forecasts for 2019 and 2020, due to weakness in Europe and some emerging markets, and said failure to resolve trade tensions could further destabilize a slowing global economy.

In its second downgrade in three months, the global lender predicted the global economy would grow at 3.5 percent in 2019 and 3.6 percent in 2020, down 0.2 and 0.1 percentage points respectively from last October’s forecasts.

The new forecasts, released ahead of this week’s gathering of world leaders and business executives in the Swiss ski resort of Davos, show that policy-makers may need to come up with plans to deal with an end to years of solid global growth.

“Risks to global growth tilt 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.

“Higher trade policy uncertainty and concerns over escalation and retaliation would lower business investment, disrupt supply chains and slow productivity growth. The resulting depressed outlook for corporate profitability could dent financial market sentiment and further dampen growth.”

The downgrades reflected signs of weakness in Europe.

Growth in the euro zone is set to moderate from 1.8 percent in 2018 to 1.6 percent in 2019, 0.3 percentage points lower than projected three months ago, the IMF said.

The IMF also cut its 2019 growth forecast for developing countries to 4.5 percent, down 0.2 percentage points from the previous projection and a slowdown from 4.7 percent in 2018.

“Emerging market and developing economies have been tested by difficult external conditions over the past few months amid trade tensions, rising US interest rates, dollar appreciation, capital outflows, and volatile oil prices,” the IMF said.

The IMF maintained its US growth projections of 2.5 percent this year and 1.8 percent in 2020, pointing to continued strength in domestic demand.

It also kept its China growth forecast at 6.2 percent in both 2019 and 2020.

Britain is expected to achieve 1.5 percent growth this year though 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 up its forecast by 0.2 percentage points to 1.1 percent this year due to an expected boost from the government’s spending measures, which aim to offset a scheduled sales-tax hike in October.

The IMF has been urging policy-makers to carry out structural reforms while the global economy enjoys solid growth. However, as risks to the outlook rise, policy-makers must now focus on policies to prevent further slowdowns, the IMF said.




 

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