IMF lowers global growth outlook for 2019 to 3.3%

The International Monetary Fund (IMF) trimmed the growth forecast for the global economy this year on Tuesday, citing the increasing trade tensions and tighter monetary policy by the Federal Reserve as reasons for the downgrade.

The world economy is expected to grow by 3.3% this year, lower than the previous forecast of 3.5%. The growth will be the slowest expansion since 2016.

In its semi-annual World Economic Report, the IMF flagged the United States (US)-China trade war and a potentially disorderly Brexit as risks to growth this year. The global lender also warned that it may cut the growth outlook further if the risks worsen.

Economic growth for 2020 was left unchanged from the previous forecast as economic activity is expected to pick up pace from the second half of this year, the IMF said.

‘The balance of risks to the outlook remains on the downside,’ the IMF said. A further escalation of trade tensions and the associated increases in policy uncertainty could further weaken growth, it said.

‘This is a delicate year for the global economy. If the downside risks do not materialize and the policy support put in place is effective, then global growth will return to 3.6% in 2020.’

Brexit, US-China trade deal under observation

A potential policy misstep from Britain could be in their indecision over how they wish to leave the European Union (EU). The country has still not come up with concrete plans on how it can cushion its economy when it exits the EU.

The IMF forecast for an ‘orderly Brexit’, but a chaotic process could shave more than 0.2% percentage points from global growth this year.

Meanwhile, it downgraded the growth outlook on the US on signs that a fiscal stimulus supported by tax cuts was producing less activity than expected.

The IMF improved the outlook for Chinese growth this year to 6.3%, as the conflict between the US and China on their trade deal did not worsen, which was not what the IMF had expected.