The International Monetary Fund is warning that the world economy is slowing — and that it will get worse if countries keep squabbling over trade.
The agency’s updated World Economic Outlook lowered estimates for growth in 2019 by 0.2 percentage points to 3.5%, its second downward revision, this time on account of weakness in Germany and Turkey.
But the new report, released as bankers and other global leaders gathered for an annual economic conference in Davos, Switzerland, made clear that the biggest known risks to growth are the unresolved trade war between the United States and China, and the possibility of Britain exiting the European Union without a deal.
“After two years of solid expansion, the world economy is growing more slowly than expected, and risks are rising,” IMF Managing Director Christine Lagarde said at a press conference in Davos.
That does not mean a global recession is around the corner, Lagarde added. But the “risk of a sharper decline in global growth has certainly increased,” she said.
The slowdown in China, the world’s second-biggest economy, is of particular concern for world growth, with pressure from tightening financial regulations and US tariffs potentially snowballing into a more dramatic contraction that could “trigger abrupt, wide-reaching sell-offs in financial and commodity markets that place its trading partners, commodity exporters, and other emerging markets under pressure,” the report’s authors said.
China said Monday that its economy expanded 6.6% in 2018, the weakest annual performance since 1990.
Chinese negotiators are due in Washington in the coming weeks as trade talks continue. President Donald Trump set a 90-day deadline after meeting his Chinese counterpart Xi Jinping in Argentina last month, but has sent mixed signals about whether he intends to proceed with a dramatic hike in tariffs if a deal isn’t reached by March.
The Wall Street Journal reported last week that Treasury Secretary Steven Mnuchin had suggested removing all tariffs in hopes of calming equity markets and smoothing the path to a deal. China has made concessions, including lifting auto tariffs and reopening soybean imports from the United States.
The IMF still sees the United States as among the world’s strongest economies, but with momentum waning as fiscal stimulus wears off. It projects 2.5% growth in 2019 slowing to 1.8% in 2020 — a marked contrast from the Trump administration’s forecast of growth above 3% for the foreseeable future.
In order to mitigate the risks, the document implores policymakers to recommit to the rules of the international trading system, take meaningful action on climate change, and reinforce their social insurance systems to guard against joblessness caused by globalization and automation.
The IMF joins a chorus of institutions warning that the global economy is in for a rough ride. The Organization for Economic Cooperation and Development two weeks ago released a report reaching similar conclusions.