(Arête News) — The pace of economic growth globally will likely slow to 3.5 percent due to rising trade tensions and U.S. interest rates, the International Monetary Fund said.
IMF’s forecast is down from the 3.7 percent growth rate from last year that had been expected to continue in 2019.
That was partly based on an unchanged outlook for U.S. growth of 2.5 percent this year but expectations for just 1.6 percent growth in the European Union’s 19 member nations that use euros, down from the previous forecast of 1.8 percent.
The Washington-based international organization released its predictions ahead of the World Economic Forum’s annual meeting that was expected to draw 3,000 political and business leaders to the Swiss mountain town of Davos.
IMF’s Managing Director Christine Lagarde compared the world economy to cross-country skiing, saying they both benefit from good visibility, stable conditions, few hazards and a disciplined cadre that remains within established tracks.
Last October, she said, it became apparent the world economy was changing for the worse.
“Risks were on the rise. We had bad news on the trade front,” she told a news conference. “So, the ‘cross-country skiing’ is going to be more laborious; more efforts will be required.”
The bottom line, she said, is that after two years of solid expansion, the world economy is growing more slowly than expected and risks are rising.
“Does that mean a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased,” she added.
Leaders at Davos have called for an end to the trade wars and other tensions sparked by the tariffs that U.S. President Donald Trump’s administration imposed on China and other major trading partners. Rising U.S. interest rates also are dampening growth among emerging markets and businesses that were heavy borrowers.
“The global economy continues to expand but third-quarter growth has disappointed in some economies,” the IMF reported.
“Idiosyncratic factors (new fuel emission standards in Germany, natural disasters in Japan) weighed on activity in large economies,” it said. “But these developments occurred against a backdrop of weakening financial market sentiment, trade policy uncertainty, and concerns about China’s outlook.”
— IMF (@IMFNews) January 21, 2019
Separately, a survey of chief executives by the consultancy firm PwC found a sharp rise in pessimism in the past 12 months due to U.S.-China tensions and protectionist trade views.
The survey, released each year at the start of WEF’s Davos meeting, indicated 29 percent of CEOs believe global economic growth will decline over the next year, six times more than in the previous year.
PwC said it was the highest percentage since 2012. Among CEOs in North America, the drop in optimism towards global growth was most pronounced, down to 37 percent from 63 percent in 2018.
China’s economy, second in size only to the United States, is expected to grow at 6.2 percent in 2019, down from 6.6 percent in 2018. That would be China’s slowest growth rate in nearly three decades.
Among emerging markets, growth is expected to continue at a robust rate but down slightly, to 4.5 percent, from the 4.6 percent rate in 2018.
Earlier this month, the World Bank said “storm clouds” were brewing for the global economy as it forecast that global economic growth would dip slightly by one-tenth of a percent.
“International trade and manufacturing activity have softened, trade tensions remain elevated and some large emerging markets have experienced substantial financial market pressures,” the World Bank said in its latest semi-annual report.
And in November, the Organization for Economic Cooperation and Development forecast global economic growth at around 3.5 per cent in 2019 and 2020.
“In the near term, policy support and strong job growth continue to underpin domestic demand,” OECD reported. “However, macroeconomic policies are projected to become less accommodative over time, and headwinds from trade tensions, tighter financial conditions and higher oil prices are set to continue.”