The Strategist

IMF: Global economic growth is slowing down

04/10/2019 - 13:15

A cyclical slowdown in developed countries will lead to a slowdown in the global economy in the coming years. In 2019 its growth will be only 3.3%, predicts the International Monetary Fund (IMF). The fund lowered the growth expectations both in the US and in major European economies. In China, it will also slow down, but the IMF does not expect Washington to raise tariffs on Chinese imports.

World economic growth will slow from 3.6% in 2018 to 3.3% in 2019, and then will accelerate to 3.6% in 2020, as follows from the April update of the International Monetary Fund macro forecast. The estimate for this year was lowered by 0.2 percentage points (pp) compared with the January forecast, and was left unchanged for the next year. After a cyclical acceleration of growth, which was lasting for two years, the world economy moved to a slowdown in the second half of 2018. Then, the GDP growth decreased from 3.8% in January-June to 3.2% in July-December. The output of equipment slowed down everywhere except for the USA, and the volume of world trade passed its peak at the end of 2017. Energy prices from a peak in October 2018 fell by 17% in April 2019, the IMF noted. The fund expects that in the medium term (three to five years), the growth rate will be about 3.6%, (this forecast assumes that the US import duties from China will remain at a rate of 10% and will not be increased to 25%).

The growth rates are also declining in individual developed countries: this year the increase in their total GDP will be only 1.8%. The revision touched primarily the United States (minus 0.2 pp, up to 2.3%, in 2019, plus 0.1 pp, to 1.9%, in 2020). Employment and consumption in the country remain high, but investment growth has already begun to slow down. Note that the Fed is waiting for even a smaller increase in US GDP - by 2.1% and 1.9% in 2019 and 2020.

Once again the IMF lowered its forecasts for Germany (minus 0.5 pp, to 0.8%, for 2019, minus 0.2 pp, to 1.4%, for 2020), as well as for France, Italy and the UK. Trade wars may affect the growth of this region. So, yesterday, US President Donald Trump promised to impose duties on European goods in the amount of $ 11 billion in response to EU subsidies to the European aircraft manufacturer Airbus.

Growth in developing countries will average 4.4% in 2019, and will reach 4.8% in the following year. The IMF forecast is lowered by 0.1 pp in both cases. Downward changes have been made, in particular, for assessments of Brazil, Mexico and South Africa. In China, the fund now expects growth of 6.3% in the 2019th and 6.1% - in 2020 (plus 0.1 pp and minus 0.1 pp compared to January, respectively). Measures to limit the credit burden and the fight against shadow banking have led to a reduction in investment in the PRC, primarily in infrastructure. Consumption of durable goods, in particular automobiles, also declined in the country (a decline in sales was recorded in 2018). Reduced export orders against the background of the introduction of US protective duties had a negative impact. As a result, China’s GDP growth slowed from 6.8% in the first half of last year to 6% in the second. The subsequent drop in imports, in turn, had a negative impact on other Asian and European economies, the fund points out.

However, the recent decision of the US Federal Reserve to slow down the increase in interest rates has already resulted in softer financial conditions, the currencies of developing countries have strengthened, and the influx of capital into their markets has also resumed. Recall that following the March meeting, the majority of members of the Federal Open Market Committee do not predict an increase in the base interest rate in 2019, and in 2020 they expect only one increase.