The world economy is slowing to its weakest pace since the global financial crisis. This was the gloomy forecast by the IMF during its annual meeting being held in Washington.
The global financial institution stated that global outlook remains ‘precarious’ with a synchronized slowdown and uncertain recovery. It stated that the outlook is beset with risks, urging policymakers to find resolutions to trade disputes since there are limited tools to respond to the new crisis.
The incessant US-China trade war started by Donald Trump to maintain his domineering political status, and other factors such as the Brexit stalemate undercut business confidence and investment. The US-China trade war alone is estimated to shrink the world economy by 0.8 percent in 2020.
For the past year, the IMF has cut projected growth for 2019 every three months. In its latest World Economic Outlook, the IMF trimmed the estimate by another two-tenths to 3 percent. The report also lowered the 2020 forecast to 3.4 percent.
The projection comes with a warning that there is no room for policy mistakes. Rather, there is an urgent need for governments to cooperatively deescalate trade and geopolitical tensions. The news of a recent deal between US and China will have an impact by adding a tenth of a percent back to the global GDP for 2020.
Trade conflicts and a slowdown in auto sales worldwide means trade growth has declined sharply. The US economy is also hit by uncertainty, yet the world’s largest economy remains in a bright spot on the global stage. The IMF projects US GDP growth to expand by 2.1 percent.
According to the IMF, although trade-related uncertainty has negative effects on investment, employment and consumption remain robust buoyed by a policy stimulus. Major central banks have lowered interest rates to soften the blow to growth without which the slowdown could have been worse.
However, the IMF also warned monetary policy cannot be the only game in town and governments should take advantage of lower rates to support growth. The world economy has been left in a rather tight spot as central banks have limited ammunition to offset policy mistakes.
The financial body also stated that trade is not the only reason for the global slowdown. Even in China’s economy the growth rated is moderating amid slowing domestic demand. China’s growth is forecasted at 6.1 percent in 2019 and 5.8 percent in 2020.
With the gloomy overall picture, it remains to be seen if major economies can recover in 2020. There is a clash of civilization between the two largest economies. These countries have to set aside their disputes to overcome the sluggish growth in manufacturing and global trade.
