IMF, OECD Global Forecasts Increasingly Downbeat

Decline in growth expectations coincided with start of US-China trade war.

The International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD) continue to lower their economic forecasts as mounting evidence shows global growth is hitting the brakes even harder than expected.

During her opening speech at the 2019 World Economic Forum in Davos this past weekend, IMF Managing Director Christine Lagarde offered a sobering view of the global economy.

“In October, the IMF cut its global growth forecast for 2019 and 2020, partly because of the negative effects of rising trade barriers. Today we are announcing a further downward revision of our forecast,” she said. “The bottom line is that after two years of strong expansion, the world economy is growing more slowly than expected and risks are rising.”

The October forecast from the IMF predicted growth of 3.7% for both 2018 and 2019, which was a reduction from its forecast in April, when it pegged growth at 3.9% for both years. Now the IMF has cut its forecast even further and is expecting growth of only 3.5% in 2019 and 3.6% in 2020.

“An escalation of trade tensions beyond those already incorporated in the forecast remains a key source of risk to the outlook,” said the IMF in its World Economic Outlook Update for January. “A range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment with adverse growth implications, especially given the high levels of public and private debt.”

The report said the “triggers” include a potential “no-deal” Brexit for the UK, and a slowdown in China that is worse than expected.

“The main shared policy priority is for countries to resolve cooperatively and quickly their trade disagreements and the resulting policy uncertainty, rather than raising harmful barriers further and destabilizing an already slowing global economy,” said the report. “Across all economies, measures to boost potential output growth, enhance inclusiveness, and strengthen fiscal and financial buffers in an environment of high debt burdens and tighter financial conditions are imperatives.”

 Meanwhile, the OECD said its January composite leading indicators, which are designed to anticipate turning points in economic activity six to nine months ahead, “continue to point to easing growth momentum in most major economies.”

It was the sixth consecutive month that the OECD’s composite leading indicators pointed to slowing global growth.

The OECD said that the tentative signs of easing growth momentum seen previously in the US and Germany have been confirmed, and were also seen in Canada, the UK, and the euro area as a whole.

The last time the OECD’s composite leading indicators showed stable growth momentum in its 36 member countries was in July—just before President Trump’s tariffs on $34 billion worth of Chinese goods took effect, and China retaliated, kicking off a full-blown trade war between the world’s two largest economies.

Tags: , , , , ,