WASHINGTON: The global economy is in a "synchronised slowdown" amidst growing trade barriers and heightened geopolitical tensions, the IMF warned on Tuesday as it downgraded the 2019 growth rate to three per cent, the slowest pace since the global financial crisis.
"This is a serious climbdown from 3.8 per cent in 2017, when the world was in a synchronised upswing," Indian-American Gita Gopinath, chief economist of the International Monetary Fund (IMF) said in the foreword to the latest World Economic Outlook.
"With a synchronised slowdown and uncertain recovery, the global outlook remains precarious. At 3 per cent growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions," she said.
Gopinath said that besides supporting growth, such actions can also help catalyse needed cooperative solutions to improve the global trading system.
Released ahead of the annual meeting of the IMF and World Bank, Gopinath in the World Economic Outlook said that this subdued growth is a consequence of rising trade barriers; and elevated uncertainty surrounding trade and geopolitics.
Idiosyncratic factors causing macroeconomic strain in several emerging market economies; and structural factors, such as low productivity growth and aging demographics in advanced economies are also responsible for this slow growth rate. "Global growth in 2020 is projected to improve modestly to 3.4 per cent, a downward revision of 0.2 per cent from its April projections," she said.
The growth projection for 2019 is the slowest pace since the global financial crisis in 2008. However, she notes that unlike the synchronised slowdown, this recovery is not broad based and is precarious.
Growth for advanced economies is projected to slow to 1.7 per cent in 2019 and 2020, while emerging market and developing economies are projected to experience a growth pickup from 3.9 per cent in 2019 to 4.6 per cent in 2020.
About half of this is driven by recoveries or shallower recessions in stressed emerging markets, such as Turkey, Argentina, and Iran, and the rest by recoveries in countries where growth slowed significantly in 2019 relative to 2018, such as Brazil, Mexico, India, Russia, and Saudi Arabia, the IMF chief economist said.
A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade, Gopinath said. "A few factors are driving this. Higher tariffs and prolonged uncertainty surrounding trade policy have dented investment and demand for capital goods, which are heavily traded," she said.
The automobile industry is contracting owing also to idiosyncratic shocks, such as disruptions from new emission standards in the euro area and China that have had durable effects. "Consequently, trade volume growth in the first half of 2019 is at 1 per cent, the weakest level since 2012," Gopinath said.
Gopinath warned that trade barriers and heightened geopolitical tensions, including Brexit-related risks, could further disrupt supply chains and hamper confidence, investment, and growth. Such tensions, as well as other domestic policy uncertainties, could negatively affect the projected growth pickup in emerging market economies and the euro area.
"A realisation of these risks could lead to an abrupt shift in risk sentiment and expose financial vulnerabilities built up over years of low interest rates," she said adding that low inflation in advanced economies could become entrenched and constrain monetary policy space further into the future, limiting its effectiveness.
"The risks from climate change are playing out now and will dramatically escalate in the future, if not urgently addressed," she said.