IMF downgrades world growth, warns of ‘precarious’ 2020

WASHINGTON: Global trade tensions and continued uncertainty are sapping the strength of the world economy, which faces a “precarious” 2020, the International Monetary Fund warned on Tuesday.

Trade conflicts are undercutting investment, and the IMF urged countries not to use tariffs in place of negotiations. In its quarterly update of its World Economic Outlook, the IMF trimmed the global forecast issued in April by 0.1 this year and next, with growth expected to hit 3.2 per cent in 2019 and 3.5 per cent in 2020.

But the report sounded the alarm, saying things could easily go wrong. “The projected growth pickup in 2020 is precarious” and presumes there will be “stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences,” the IMF said.

However, the United States, which is at the center of most of the trade tensions, saw one of the rare upgrades in the report, as it got a short-term boost from growth in the early part of the year. The IMF raised the US GDP forecast by three-tenths to 2.6 per cent for 2019, but weakening demand, in part due to the trade conflicts and tariffs, points to “slowing momentum over the rest of the year.”

The US economy is then expected to slow to 1.9 per cent in 2020. China, which is the main target of US trade actions, was already experiencing a slowdown. But “the negative effects of escalating tariffs and weakening external demand have added pressure,” the report said. The report downgraded Chinese growth by a tenth this year and next, to 6.2 per cent and 6.0 per cent.

The IMF cautioned that there are an abundance of “potential triggers” for the situation to turn negative quickly, including the possibility of more US tariffs on China.