Daily Management Review

IMF: Global economy is weakening


01/22/2019


The International Monetary Fund (IMF) in its January macro-forecast once again lowered expectations for the growth of the world economy in 2019 and 2020, to 3.5% and 3.6%, respectively. In the past, the October forecast, the fund indicated that trade wars had the most negative impact. Now, however, it is the weakness of global demand and the possible reduction in growth in some countries, primarily in China.



pixabay
pixabay
The IMF, in its January report on global economic outlook, lowered its forecast for global GDP growth for 2019 from 3.7% (expected in October) to 3.5%. The fund believes that the key risks are outcome of negotiations between the United States and China on the trade dispute (recall that the deadline has shifted to March 1 - after that, American duties on Chinese imports can be raised), as well as the state of financial markets (including in the event of Brexit without any agreement). “The additional decline in the global forecast is a consequence of weaker growth in the second half of 2018,” the report says. In October, the growth estimate was reduced primarily due to the negative impact of trade protectionism.

The revision was subjected primarily to the assessment for the euro area - minus 0.3 percentage points (pp), up to 1.6% for 2019 (for 2020, it was left unchanged - 1.7%). Including in Germany this year - minus 0.6 pp, to 1.3% (by 2020 - 1.6% was left) - due to weaker domestic demand and a reduction in industrial production against the background of more rigid environmental regulation for cars. Also, the estimate for this year was reduced in Italy - minus 0.4 pp, to 0.6%. For Japan, on the contrary, the forecast was improved by 0.2 percentage points for both years (up to 1.1% and 0.5% of GDP growth, respectively). According to the US, IMF expectations are unchanged - 2.5% for this year and 1.8% for the next (growth will be higher than potential and will lead to an increase in imports, and with it the trade deficit). For the UK, the forecast has also not changed - 1.5% and 1.6%, however, it assumes achievement of a compromise with the EU on Brexit.

For developing countries, the forecast was reduced by 0.2 percentage points for this year, to 4.5%, for the next - by 0.1 percentage points, to 4.9%. In particular, growth in Turkey, Mexico and Saudi Arabia will be worse than previous expectations.

"Given the fact that investors in general are more inclined to exit risky assets, capital outflows were observed in emerging markets in the third quarter," the IMF said.

In China, the estimate is still 6.2% for both years. At the same time, the IMF pointed to the risks of an additional slowdown in the Chinese economy - last year it was mainly the result of stricter financial regulation and the fight against shadow banking, as well as a trade dispute with the United States. Yesterday, Beijing published data on the growth of the PRC economy for the fourth quarter of 2018 - 6.4% (versus 6.5% in July — September). Year to year, the figure slowed to 6.6% from 6.8% in 2017. If the differences between the US and China are not resolved, the state of the Chinese economy could be a risk for financial markets, the fund warns.

source: imf.org






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