Global Economy on Course for Weakest Growth Since Crisis
October 15 2019 - 9:29AM
Dow Jones News
By Josh Zumbrun
WASHINGTON -- The global economy in 2019 is on course for its
weakest year of growth since the financial crisis, weighed down by
tensions that have slowed international trade to nearly a
standstill.
Global growth is expected to fall to 3% this year, according to
new estimates from the International Monetary Fund, down from an
estimate of 3.2% in July. As recently as 2017, the global economy
was growing at a 3.8% pace. The IMF attributed the sharp slowdown
over the past two years primarily to rising trade barriers that
have stunted manufacturing and investment around the world.
"At 3% growth, there is no room for policy mistakes and an
urgent need for policy makers to cooperatively de-escalate trade
and geopolitical tensions," Gita Gopinath, the IMF's chief
economist, said.
As the year has progressed, trade has slowed more sharply than
forecasters had expected earlier in the year. The IMF's projections
for 2019 are based off data collected through Sept. 30 --
three-quarters of the way through the year -- reflecting reports
from around the world showing a sharp decline in manufacturing
activity, investment and trade.
The IMF now forecasts that world trade volumes will expand by
just 1.1% this year, less than half the growth rate of a July
estimate of 2.5%. In 2017, trade was a bulwark for the global
economy, expanding by 5.7%, before slowing to 3.6% in 2018.
Mounting signs of a slowdown have alarmed global economic policy
makers, many of whom are traveling to Washington this week for the
annual meetings of the IMF and World Bank. At the top of their
agenda is what can be done about a global-growth slowdown.
"Global trade growth has come to a near standstill," said
Kristalina Georgieva, the new director of the IMF, in her inaugural
speech last week in Washington. "Even if growth picks up in 2020,
the current rifts could lead to changes that last a generation --
broken supply chains, siloed trade sectors, a 'digital Berlin Wall'
that forces countries to choose between technology systems."
The IMF's new forecasts show slower growth in 90% of the
world.
Forecasts for the U.S. were cut by 0.2 percentage point to 2.4%
annual growth in 2019; Euro area forecasts were cut 0.1 point to
1.2%; China's forecast was lowered 0.1 point to 6.1%.
The IMF has long expected a modest uptick in global growth in
2020, but that forecast was also lowered 0.1 percentage point to
growth of 3.4%. The forecast for a turnaround, however, is "not
broad based and is precarious," the IMF said in its report.
Much of the solution, in the IMF's framework, was in the hands
of trade ministers and heads-of-state, rather than the finance
ministers and central bankers who attend the IMF meetings.
The Trump administration last week struck a tentative deal in
principle with China, but the two countries retained tariffs on
most of their bilateral trade. Previous truces have eventually
given way to more tariffs. Tensions have recently escalated with
Europe as well, with the U.S. set to impose duties this week on
trade with the European Union.
Ms. Gopinath, the IMF's chief economist, cited concern that many
central banks have already taken action to try to offset the damage
from the trade tensions, but this hasn't stopped the slowdown.
"It is important to keep in mind that the subdued world growth
of 3% is occurring at a time when monetary policy has significantly
eased almost simultaneously across advanced and emerging markets,"
Ms. Gopinath said. "With central banks having to spend limited
ammunition to offset policy mistakes, they may have little left
when the economy is in a tougher spot."
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
October 15, 2019 09:14 ET (13:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.