The Daily Update - IMF Global Growth

Last week the International Monetary Fund (IMF) warned that the sustained and escalating global trade conflicts initiated by the Trump Administration threaten to derail the economic recovery and depress medium-term growth prospects. The IMF believes that the global economy as a whole could lose about 0.5% of growth or about USD 430bn in lost GDP by 2020, with the possibility of the US being hit especially hard. As the IMF states, the US could find itself ‘as the focus of global retaliation’ with a higher percentage of its goods being taxed ‘It is therefore especially vulnerable’. However, the warning of a sharp slowdown was not only reserved for the US, with Japan, the EU and the UK also facing severe headwinds. Japan will grow the slowest at 1%, with the UK growth downgraded to 1.4%, against the 1.6% predicted earlier this year. Growth across the Eurozone this year is also forecast to slow, to 2.2 per cent, compared with an earlier forecast for an expansion of 2.4 per cent.

Beyond the immediate threat from weaker levels of international trade, the IMF said that greater use of protectionist measures could raise the price of consumer goods, disrupt global supply chains, hinder business investment, thus slowing the spread of productivity-boosting technologies. The IMF’s Chief Economist, Maurice Obstfeld, warned ‘Countries must resist inward-looking thinking and remember that on a range of problems of common interest, multilateral cooperation is vital’.

While the Fund made no change to either its 2018 or 2019 global growth forecast of 3.9%, the accompanying statement did highlight that ‘the expansion is becoming less even, and risks to the outlook are mounting’. The fund believes that world economy began to plateau about 2 years ago noting ‘Amid rising tensions over international trade, the broad global expansion that began roughly two years ago has plateaued and become less balanced’ adding ‘We continue to project global growth rates of just about 3.9% for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term’.

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