IMF Cuts Global Growth Forecast Again as ‘Missteps’ Fuel Concern

(Bloomberg) -- The International Monetary Fund further reduced its global growth outlook, already the lowest since the financial crisis, and suggested that policy “missteps” on trade and Brexit could derail a projected rebound.

The world economy will expand 3.2% this year and 3.5% next year, both down 0.1 percentage point from April projections, the fund said in its latest quarterly World Economic Outlook released Tuesday in Washington. A rate of 3.3% or lower would be the weakest since 2009. The IMF also slashed expectations for growth in the global volume of trade in goods and services, reducing its estimate by 0.9 point to 2.5% in 2019.

“The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences,” the IMF said.

The warnings about the brittle state of the world economy follow weaker readings on China’s growth and come just before U.S. GDP data due this week, which are forecast to show growth cooled in the second quarter.

Central banks have been monitoring trade tensions and slowing growth globally. The Federal Reserve is poised to cut interest rates at the end of this month for the first time in more than a decade.

Since the IMF’s last forecast in April, the Trump administration has increased tariffs on Chinese imports sharply -- with China responding in kind -- though the U.S. and China agreed in late June to resume talks and avoid more tariffs.

While the IMF saw global trade slowing this year more significantly as a result of the trade tensions, it predicted a bounce back to 3.7% growth in volumes in 2020, the same pace as 2018.
“The principal risk factor to the global economy is that adverse developments -- including further U.S.-China tariffs, U.S. auto tariffs, or a no-deal Brexit -- sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline,” the IMF said.

Country Forecasts

The IMF cut China growth estimates to 6.2% this year and 6% next year, both down 0.1 percentage point. Second-quarter GDP data released last week showed a deceleration to 6.2% expansion for the country, the weakest pace since quarterly data began in 1992.

The U.S. forecast was raised 0.3 point to 2.6%, on a better-than-anticipated performance in the first quarter, but the IMF’s 2020 estimate was unchanged at 1.9% on waning fiscal support. Second-quarter GDP data due Friday will show growth slipped to 1.8% from a 3.1% annualized pace in the first quarter, according to Bloomberg’s survey of economists.

Trade Tensions

The IMF said the risks facing the global economy included trade tensions denting investment, the continuing impact of low interest rates on investors’ risk appetite and disinflationary pressures that would make servicing debt harder, and constrain central banks’ ability to use monetary policy in downturns.

Trade was also a main concern last week in the IMF’s annual External Sector Report, with Chief Economist Gita Gopinath warning that such conflicts are weighing on the global economy.

“It’s absolutely urgent to end these trade wars as soon as possible, to not escalate, and also to roll back the tariffs in place,” Gopinath said in an interview with Bloomberg’s Tom Keene ahead of Tuesday’s report. “That will have a big boost to business sentiment that will raise investment and be good for the global economy.”

What Our Economists Say

“Our global GDP tracker suggests the world economy expanded at an annualized pace of 2.4% in the second quarter. If that pace is maintained, the IMF’s forecasts will prove too optimistic. Our base case isn’t for a meltdown, but we do think a lot would have to go right for the IMF forecast to prove accurate.”

Tom Orlik and Dan Hanson, Bloomberg Economics
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In the U.K., a six-month Brexit extension announced in April “provided some initial reprieve,” the IMF said. The fund raised its 2019 growth estimate for the economy by 0.1 point to 1.3%, but the forecast assumes an “orderly Brexit” and the ultimate form of the transition is “highly uncertain.”

Other Highlights

• The Washington-based fund boosted its overall growth projection for advanced economies by 0.1 point to 1.9% in 2019.
• The IMF lowered the estimate for emerging-market and developing nations by 0.3 point to 4.1%. That pace was seen rebounding the following year to 4.7%.
• It left its euro-area growth projection unchanged at 1.3%, while lowering Japan’s 0.1 point to 0.9%.
• The estimate for Brazil was cut by 1.3 point to 0.8% on persistent uncertainty about pensions and other reforms.

--With assistance from Zoe Schneeweiss and Shawn Donnan.

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Scott Lanman

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