IMF lowers (yet) global growth forecast

According to the institution, global growth should not exceed 3% in 2019, its slowest pace since the 2009 financial crisis.

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In its autumn economic outlook, released on Tuesday (October 15th), the International Monetary Fund (IMF) is once again downgrading its growth forecasts for 2019, on the back of trade tensions and a slowdown in the Chinese economy. The institution hopes for an acceleration in 2020, while remaining cautious, given the climate of uncertainty weighing on the global economy.

Global growth should not exceed 3% in 2019. This is the slowest pace since the 2009 financial crisis (compared to 3.6% in 2018). This is 0.3 percentage point less than the latest forecast of the institution in April.

"After a pronounced slowdown in the last three quarters of 2018, global growth stabilized at a slow pace in the first half of 2019"observes the IMF, pointing to trade tensions that have led to higher tariffs, reduced corporate confidence and increased uncertainty.

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According to IMF calculations, these trade tensions are expected to cost 0.8 points of gross domestic product (GDP) to global growth in 2020. And again, their effects have been buffered by accommodative monetary policy in the United States and in many other countries. other advanced and emerging countries. "In the absence of this monetary stimulus, world growth would have been 0.5 percentage point lower than GDP in 2019 and 2020"says Gita Gopinath, the chief economist of the IMF.

The Washington-based institution also cites other, more structural, reasons for slowing growth, namely the slow rise in productivity and aging demographics in advanced economies.

For 2020, the IMF anticipates a slight acceleration in global growth (to 3.4%), supported by emerging countries, while, at the same time, activity should be less dynamic in a group of countries including Japan , the United States, Europe and China, half of the world's GDP. The IMF thus lowers its growth forecast in the euro zone for 2020 to 1.4%.

  • Air hole of commerce, worries about services

Deceleration in global growth has led to a slowdown in industrial production, whose index has been halved since the beginning of 2018. The automotive sector, which had to adapt to new standards emissions in China and the European Union, even saw its global sales fall by 3% in 2018. The new tariffs on US imports from China and the uncertain outcome of the negotiations between Washington and Beijing have encouraged companies to limit or defer their purchases of capital goods. The decline in demand for intermediate products, which account for half of the world's trade, weighed on world trade whose growth did not exceed 1% in the first half of 2019, its slowest pace since 2012.

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Services activity, whose trade is less subject to the vagaries of world trade, has held up well, allowing the labor market to maintain its momentum and wages to rise in advanced economies. "This divergent trajectory between manufacturing and service activities has continued for an unusually long time, and we are concerned about whether the weakness of the manufacturing sector could spread to that of services and when?", notes Gita Gopinath.

  • IMF calls for fiscal stimulus

To protect economies from the risks of trade tensions and uncertainties in the current environment, the IMF calls on governments to "Defuse trade tensions, reinvigorate multilateral cooperation, and support economic activity where needed". Noting that fiscal stimulus in China and the United States has helped to minimize the impact of rising tariff barriers, the international institution recommends that countries with sufficient leeway to follow their examples. The case of Germany is quoted: "The country should take advantage of negative interest rate borrowing to invest in human capital and infrastructure, if only from a cost-benefit point of view".

Read the column: Budget boost: "Will Germany follow the Dutch example? "

In its report, the IMF also points out that the reduction of greenhouse gas emissions and resilience to the consequences of rising temperatures and devastating weather events have become Urgent global imperatives. According to the institution, "Rising carbon prices must be at the heart of efforts" climate change, and must be accompanied by the promotion of low-carbon energy and the diffusion of green technologies. "The future of climate change is happening now and its risks will increase dramatically if not addressed urgently"Gita Gopinath worries.

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