Trade tensions still weighing on global growth, IMF warns

Washington-based fund cuts growth forecast for world economy

Managing Director of the International Monetary Fund Kristalina Georgieva speaks in Washington DC

Managing Director of the International Monetary Fund Kristalina Georgieva speaks in Washington DC

 

Trade policy uncertainty and geopolitical tensions are still exerting a downward pressure on global growth, the International Monetary Fund (IMF) has said.

In its latest World Economic Outlook report, the fund cut its growth forecast for the world economy to 3.3 per cent in 2020 and 3.4 per cent for 2021.

However, on a more upbeat note, it said a US-China trade deal and “diminished fears of a no-deal Brexit” were further signs that trade and manufacturing activity may soon “bottom out”.

The more positive outlook was also aided by a shift toward more accommodative monetary policy in several countries.

“While the baseline growth projection is weaker, developments since the fall of 2019 point to a set of risks to global activity that is less tilted to the downside,” the Washington-based fund said.

“These early signs of stabilisation could persist and eventually reinforce the link between still-resilient consumer spending and improved business spending,” it said.

The IMF has cited uncertainty over tariffs and its negative effects on business investment as the biggest factor in limiting growth. “However, few signs of turning points are yet visible in global macroeconomic data,” it said.

The fund’s cautious outlook assumes that there are no additional flare-ups in US-China trade tensions, and that Britain executes an orderly exit from the EU later this month.

Although downside risks had diminished in the wake of the US-China trade deal, the IMF said they were still considerable.

“Rising geopolitical tensions, notably between the United States and Iran, could disrupt global oil supply, hurt sentiment and weaken already tentative business investment,” the IMF said. “Moreover, intensifying social unrest across many countries – reflecting in some cases, the erosion of trust in established institutions and lack of representation in governance structures – could disrupt activity, complicate reform efforts and weaken sentiment, dragging growth lower than projected,” it said.

The report and its more upbeat tone comes despite a warning last week from the new head of the IMF Kristalina Georgieva that the global economy risks a return of the Great Depression, driven by inequality and financial sector instability.

Speaking at the Peterson Institute of International Economics in Washington, Ms Georgieva said new IMF research, which compares the current economy to the “roaring 1920s” that culminated in the great market crash of 1929, revealed that a similar trend was already under way.