IMF Sours Further on Global Economy

In its midyear update to the World Economic Outlook, the International Monetary Fund (IMF) on Tuesday revised its projections for global growth in 2019 from a prior estimate of 3.3% to 3.2% and for 2020, down from 3.6% to 3.5%.

Calling the global economy “sluggish and precarious,” the IMF said the lowered expectation for 2019 “reflects negative surprises” for emerging and developing market growth offsetting some “positive surprises” in growth in the advanced economies.

While growth is expected to pick up in 2020, nearly 70% of the projected growth depends on improving performance from emerging and developing economies and is, as a result, “subject to high uncertainty.”

Calling some of the causes of slowing growth “self-inflicted,” the IMF notes the remaining uncertainty of a United States-China trade deal, tensions in global technology supply chains and the increased prospects for a no-deal Brexit now that Boris Johnson has been chosen as the U.K.’s new prime minister.

A strong U.S. economy in the first quarter of this year led the IMF to boost its estimate of growth among the advanced economies to 1.9%, up 0.1 percentage point from the prior estimate. The agency expects growth to slide to 1.7% going forward as U.S. gains from financial stimulus wears off, weak productivity growth continues and aging populations in the advanced economies weaken long-run prospects.

The forecast for emerging economies calls for growth of 4.1% in 2019 and 4.7% in 2020, down 0.3 and 0.1 percentage points, respectively, from prior estimates. Chinese growth of 6.6% in 2018 is forecast to drop to 6.2% this year and 6% in 2020, both slightly lower than the prior forecast due in part to U.S. tariffs. The country’s second-quarter growth rate was right on target at 6.2%.

Estimates for Brazil have been lowered by 1.3% this year and 0.1% in 2020. The new projections call for 2019 growth of just 0.8% rising to 2.4% in 2020. Growth in India has been reduced by 0.3% both this year next to 7.0% and 7.2%, respectively.

The IMF report concludes that trade tensions have escalated since its April update. Among the issues are disruptions to the trade and technology supply chains, a change in risk sentiment, disinflation, along with climate change risks, political risks and the threat of conflict and more civil strife.

To combat this laundry list of problems, the IMF advocates multilateral solutions to trade issues that involve the World Trade Organization, arguing that “countries should not use tariffs to target bilateral trade balances.” Advanced economies are encouraged to adopt more accommodative macroeconomic policies if the already weak outlook weakens further and emerging economies’ fiscal policies should “focus on containing debt while prioritizing needed infrastructure and social spending over recurrent expenditure and poorly targeted subsidies.”

The IMF is not alone with its concern for the global economy. Earlier this month the Organization for Economic Cooperation and Development (OECD) published its annual “Going for Growth” report outlining the steps individual countries need to take to get the world’s economy back on track.