The International Monetary Fund (IMF) is forecasting the lowest economic growth since the global financial crisis of 2007 and 2008.
In the IMF‘s October World Economic Outlook, it downgraded its July forecast of 3.2% economic growth to 3% in 2019. It is the fifth consecutive occasion that the IMF has downgraded their prediction for the global economy.
The IMF laid the blame squarely on the US imposing trade tariffs on China and geopolitical tensions such as in Hong Kong and in Europe. US President Donald Trump has been in China trying to agree a new trade deal and said China has promised to buy up to US$50 billion in US agricultural products whilst he had agreed not to increase tariffs any further.
….I agreed not to increase Tariffs from 25% to 30% on October 15th. They will remain at 25%. The relationship with China is very good. We will finish out the large Phase One part of the deal, then head directly into Phase Two. The Phase One Deal can be finalized & signed soon!
— Donald J. Trump (@realDonaldTrump) October 13, 2019
“The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,” the IMF said in a statement. “In addition, the automobile industry is contracting, owing also to a variety of factors, such as disruptions from new emission standards in the euro area and China that have had durable effects. Overall, trade volume growth in the first half of 2019 has fallen to 1%, the weakest level since 2012.”
The IMF claimed the action by major central banks to cut reducing interest rates to boost the economy by 0.5 percentage points in both 2019 and 2020, however it warned that monetary policy alone cannot restore economic growth. Government financial support was advocated with Germany singled out as having room to use current negative interest rates to boost investment.
“Advanced economies continue to slow towards their lower long-term potential. Growth has been downgraded to 1.7 percent for 2019 (compared to 2.3 percent in 2018) and it is projected to stay at this level in 2020. Strong labor market conditions and policy stimulus are helping to offset the negative impact from weaker external demand for these economies,” said the IMF.
“Growth in emerging market and developing economies has also been revised down to 3.9 percent for 2019 (compared to 4.5 percent in 2018) owing in part to trade and domestic policy uncertainties, and to a structural slowdown in China.
“The uptick in global growth for 2020 is driven by emerging market and developing economies that are projected to experience a growth rebound to 4.6 percent. About half of this rebound is driven by recoveries or shallower recessions in stressed emerging markets, such as Argentina, Iran, and Turkey, and the rest by recoveries in countries where growth slowed significantly in 2019 relative to 2018, such as Brazil, India, Mexico, Russia, and Saudi Arabia. There is, however, considerable uncertainty surrounding these recoveries, especially when major economies like the United States, Japan, and China are expected to slow further into 2020.”
Australian Treasurer Josh Frydenberg said in a statement that while the fundamentals of the Australian economy remain sound, “we do face headwinds”.
“We have a AAA credit rating, record labour market participation and welfare dependency at its lowest level in three decades. We are in our 29th year of consecutive economic growth — a record unmatched by any other developed nation,” Frydenberg said.
“But the international challenges are a stark reminder of why we must stick to our economic plan which will deliver lower taxes so Australians can keep more of what they earn, more infrastructure to create jobs and boost productivity.”