IMF says trade tensions will affect the global economy in 2019

posted on 21st January 2019 by Justin Burns

The International Monetary Fund (IMF) warned today at the World Economic Forum in Davos that escalating trade tensions, Brexit and the US federal government shutdown pose downsides risks to global economic growth this year.

The IMF said while global growth in 2018 remained close to post-crisis highs, the global expansion is weakening amid growing risks and at a rate that is somewhat faster than expected.

This update of the World Economic Outlook (WEO) projects global growth at 3.5 per cent in 2019 and 3.6 per cent in 2020, 0.2 and 0.1 percentage point below last October’s projections.

IMF said: “The downward revisions are modest; however, we believe the risks to more significant downward corrections are rising. While financial markets in advanced economies appeared to be decoupled from trade tensions for much of 2018, the two have become intertwined more recently, tightening financial conditions and escalating the risks to global growth.”

The Washington-based organisation said factors affecting global economic growth include Brexit, rising of trade tensions and a worsening of financial conditions are key sources of risk to the outlook.

The IMF added: “An escalation of trade tensions and a worsening of financial conditions are key sources of risk to the outlook. Higher trade uncertainty will further dampen investment and disrupt global supply chains. A more serious tightening of financial conditions is particularly costly given the high levels of private and public sector debt in countries.”

Chief economist, Gita Gopinath said: “Overall, the cyclical forces that propelled growth may be weakening faster than we thought.”

“The backdrop is one of rising risks and slowing growth. Policy-makers must resolve trade disagreements cooperatively and quickly,” Gopinath said.

She also added that the Brexit cliffhanger weighs on the outlook: “A no-deal Brexit is one of the major risks to our forecast.”

A no-deal Brexit would prompt a decline in long-run GDP of 5-8 percentage points, Gopinath warned, while months of uncertainty would also take a toll on the economy.

Overall, the IMF said Brexit poses a great risk to the UK economy than China’s slowdown.