10 Apr 2019

IMF warns of global economic downturn

10:57 am on 10 April 2019

The International Monetary Fund (IMF) has cut its forecast for world economic growth this year as the global economy slows more than expected, raising risks of a sharp downturn.

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The IMF said the US-China trade war and a potentially disorderly British exit from the European Union are key risks to the global economy. Photo: 123rf.com

The Fund's six monthly World Economic Report has pointed to the US-China trade war and a potentially disorderly British exit from the European Union as key risks and warned that the chances of further cuts to the outlook were high.

Some major economies, including China and Germany, might need to take short-term actions, the IMF said.

"This is a delicate moment for the global economy," IMF chief economist Gita Gopinath said.

She said governments may need to open their pocketbooks at the same time "across economies" if the slowdown becomes more serious, adding that looser monetary policy might also be needed.

In its third downgrade since October, the IMF said the global economy will likely grow 3.3 percent this year, the slowest expansion since 2016. The forecast cut 0.2 percentage points from the IMF's outlook in January.

The projected growth rate for next year was unchanged at 3.6 percent.

More than two-thirds of the expected slowdown in 2019 stems from troubles in rich nations, including members of the EU.

"In this context, avoiding policy missteps that could harm economic activity should be the main priority," the IMF said its report.

One potential misstep lies in Britain's indecision over how to leave the EU. Despite looming deadlines, London has not decided how it will try to shield its economy during the exit process. The IMF said it was assuming an orderly "Brexit".

The EU's economic growth is already slowing substantially, though the IMF said it still expects the slowdown in Europe and some emerging market economies will give way to a re-acceleration in growth during the second half of 2019.

The US economy was seen doing better than most other rich nations, but it too was downgraded on signs that a fiscal stimulus fuelled by tax cuts was producing less activity than previously expected.

The IMF said the US Federal Reserve was right to pause its rate-hiking cycle, which it said would support the US and world economies.

It lifted its outlook for Chinese growth this year - to 6.3 percent - in part because an expected escalation in the US-China trade war had not materialized, which it said was showing green shoots of growth.

-Reuters / BBC

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