IMF Downgrades Global Growth Prospects, Blaming Trade Tensions

The International Monetary Fund (IMF) has issued its World Economic Outlook, October 2018, in which it warns that global expansion of gross domestic product (GDP) will slow from its previous forecasts for this year and next. The major culprit will be trade tensions, particularly between the United States and China.

According to the report:

Global growth is projected at 3.7 percent for 2018– 19—0.2 percentage point lower for both years than forecast in April. In the United States, momentum is still strong as fiscal stimulus continues to increase, but the forecast for 2019 has been revised down due to recently announced trade measures, including the tariffs imposed on $200 billion of US imports from China.

The United States and China are the world’s two largest economies, so their GDPs have an outsized effect on global numbers. And China and the United States face other headwinds, according to the report:

Global financial conditions are expected to tighten as monetary policy normalizes; the trade measures implemented since April will weigh on activity in 2019 and beyond; US fiscal policy will subtract momentum starting in 2020; and China will slow, reflecting weaker credit growth and rising trade barrier.

The United States no longer has the power of the Federal Reserve to help lift the economy via lower interest rates. As a matter for fact, it has started to raise them.

And the prospects to dodge the problems have fallen. The report notes:

The environment of continued expansion offers a narrowing window of opportunity to advance policies and reforms—both multilaterally and at the country level—that extend the momentum and raise mediumterm growth for the benefit of all, while building buffers for the next downturn and strengthening resilience to an environment where financial conditions could tighten suddenly and sharply.

The new IMF forecast is one in a lengthening list of expert opinions about the end of the global expansion that started at the end of the Great Recession 10 years ago and has bloomed since then. As it appears that period is over, economists are left to ponder how fast the deceleration will happen.