"No room for political mistakes," IMF announces


At 3% growth, there is "no room for political mistakes". In unveiling the latest global economic growth forecast for 2019, Gita Gopinath, the IMF's chief economist, urged policymakers to "urgently" reduce trade tensions.

The International Monetary Fund announced on Tuesday that it was forecasting the weakest growth since the financial crisis in 2019, initially blaming the trade war between the United States and China, which is starting hard at international trade.

The estimates were made before Friday's announcement of an agreement in principle between the world's two largest economies. However, the truce is not likely to change the trend in the short term.

The persistence of geopolitical tensions, particularly in the Middle East, the difficult exit of the United Kingdom from the European Union (Brexit) and a manufacturing sector – in particular the automobile sector – at half-mast, constitute the other main risks that led the Fund to to lower, for the fifth time in a year, its global growth forecast.

"The global economy is experiencing a synchronized slowdown," Gopinath said, echoing the words of new IMF Managing Director Kristalina Georgieva.

The expansion is now far from the 3.8% recorded in 2017 "when the world was in a synchronized growth," added the economist.

And while the recovery was driven by international trade after the 2008 crisis, the volume of goods and services traded will only increase by 1.1% (-1.4 points) this year, the lowest since 2012. This is well below the 3.6% of 2018.

Washington and Beijing, at the heart of a tariff war unprecedented since March 2018, will both record weaker growth than estimated in July.

US expansion should fall to 2.4% (-0.2 points), that of China to 6.1% (-0.1 points).

"Trade-related uncertainty has had negative effects on investment" in the United States, the IMF commented. "But employment and consumption remain robust, also supported by stimulus," he notes, which allows the world's first economy to pull, for the moment, its pin of the game.

"In China, the deterioration in growth reflects not only the rise in tariffs but also the slowdown in domestic demand following the measures taken to control the debt," says the institution.

At the same time, eurozone countries are struggling with an expected growth of 1.2% (-0.1 points). In Italy, GDP will even stagnate; in Germany, it will grow by only 0.5% (-0.2 points) and 1.2% in France (-0.1 points).

"In general, the weakness of exports has slowed the activity of the euro area since the beginning of 2018", summarized the IMF which also notes the persistence of the impact of the change of polluting standards in the automotive sector.

Elsewhere in the world, the growth of some major economies in 2019 will be much lower than in 2018, such as India (-0.9 points to 6.1%), Brazil (+0.1 points to 0.9 %), Mexico (-0.5 points to 0.4%), Russia (-0.1 points to 1.1%) and South Africa (unchanged at 0.7%). But it should recover in 2020.

Looking to the future, the IMF anticipates a rebound in growth in 2020 to 3.4% (-0.1 points).

"However, unlike the slowdown that is synchronized, this recovery is not general and remains precarious," warned Gita Gopinath, noting that the slowdown will instead continue in the United States, Japan and China.

Overall, all countries face headwinds. Some of them – such as the United States – were able to offset them by lowering interest rates.

However, warns the IMF, "monetary policy can not be the only tool" to stimulate growth.

And the first signs of a slowdown in the service sector in both the United States and the euro zone are visible.

For example, the Fund recommends that Germany take advantage of "negative borrowing rates to invest in social capital and infrastructure".

"Political mistakes at this stage, such as a Brexit without agreement or an escalation of trade disputes, could seriously undermine confidence, growth and job creation," the IMF warns, also warning of volatility in financial markets.

Finally, the IMF urges to tackle now the risks of climate change that "will increase dramatically in the future".

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