IMF Downgrades Global Growth Forecasts

IMF Downgrades Global Growth Forecasts

The International Monetary Fund reduced its forecast for global growth for 2018 and 2019 during its October World Economic Outlook report. Having previously forecast global growth of 3.9% for both years, the IMF has now revised this down to 3.7% for both 2018 and 2019. Factors including the effect of the US-China trade tariffs imposed on imports plus weakening economic performance by the Eurozone, Britain and Japan were cited as significant reasons behind the growth downgrade. 


Politics and Trade Wars 

The effects of the emerging US-China trade war are expected to be seen in 2019, with further retaliatory tariffs and escalation possible. Combined with parts of the US fiscal stimulus coming to an end the IMF has dropped its forecast for US growth in 2019 from 2.7% to 2.5%, while China’s is similarly cut by 0.2% to 6.2%. In a Europe fixated on Brexit, a fall in manufacturing orders for Germany has been a factor in seeing the Eurozone growth forecast for 2018 also cut by 0.2% to 2%. 


Emerging Markets Also Affected 

Emerging world markets have seen some of the largest forecast cuts, particularly in Brazil, Turkey, Argentina and Mexico. Lower investment and larger outflows of capital as interest rates normalise and rise as in the case of the US, are factors cited by the IMF. This is coupled with weaker trade growth. Brazil alone has seen its forecast for 2018 cut from 1.8% to 1.4%, though some emerging markets such as Russia and Saudi Arabia buck the trend on the back of rising oil prices. 

The US has placed $250 billion worth of tariffs on China in 2018, with the Chinese levying $110 billion in return. A resolution of this trade war could mean a significant upturn in forecasts, but as with most trade policy politics will dictate.


Date: 19 October 2018, 9:10 am
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