The International Monetary Fund has warned that the pace of global growth for 2019 will be the slowest since the 2008-2009 financial crisis because of the ongoing trade war between the United States and China. It also added that tits outlook could get worsen further if the trade war between the two countries is not resolved.
The global economy will grow at 3 per cent for 2019, said the IMF in its latest World Economic Outlook projections, compared to an earlier estimation in July by the global crisis banker of a growth rate of 3.2 per cent. The IMF said that this reduction in forecast was because of an increase in the global impact trade spats all across the world.
The IMF and World Bank annual meetings held last week were overcast with the predicted gloomy forecast of the global economy last week.
The IMF has identified an number of major issues for the global economy including political backlash in some emerging market countries struggling with IMF-mandated austerity programs to stagnating trade, according to the IMF’s new managing director, Kristalina Georgieva.
The increasing economic fall outs because of the ongoing US-China trade war is being felt across the world because of direct costs, turmoil in the markets, slowdown in investments and lowering of productivity due disruptions in the global supply chains of large companies, was detailed out in the World Economic Outlook report.
There would be a reduction of 0.8 per cent in global economic output 2020 because of the announced tariffs, said the IMF. That reduction is worth about $700 billion which is equal to the total economy of Switzerland, Georgieva said last week.
“The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,” IMF Chief Economist Gita Gopinath said in a statement.
Gopinath said that across much of the global economy, the services segment was still doing well even though signs of softening of demand are emerging from the United States and Europe.
Expectations of better performances in Brazil, Mexico, Russia, Saudi Arabia, and Turkey is likely to drive a pick up in the global economic growth to about 3.4 per cent in 2020. However even this forecast was lower than the earlier forecast for the same period by the IMF made in July. IMF said that this lowering was because of increasing vulnerability to downside risks which includes geopolitical issues such as trade wars and spats, continued uncertainty over Brexit and a sudden risk aversion tendency of investors in the financial markets.
In 2018, there was “a virtual standstill” of the foreign direct investment abroad by advanced economies, the IMF said. Over the last many years, this figure had grown to an average of more than 3 per cent of global gross domestic product annually.
(Adapted from CNBC.com)