IMF Downgrades Global Growth Forecasts

IMF sign

The International Monetary Fund slashed its global growth forecasts on and a survey showed increasing negativity among business chiefs as trade tensions and uncertainty loomed over the world’s biggest annual gathering.

The bleak IMF forecasts, published on the eve of the World Economic Forum in Davos, Switzerland, emphasized the challenges that are faced by policymakers as they tackle an array of actual or potential crises, from the US-China trade war to Brexit.

“After two year of solid expansion, the world economy is growing more slowly than expected and risks are rising,” said Christine Lagarde, who is IMF Managing Director. “Does that mean a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased.”

He also urged policymakers to brace for a “serious slowdown.”

In its World Economic Outlook reported released on Monday, the IMF predicted the global economy will grow at 3.5 percent in 2019 and 3.6 percent in 2020, down 0.2 and 0.1 percentage point respectively from last October’s estimates.

“There are so many variables and so much uncertainty globally, from the trade tension to geopolitical changes, so a lot of market activity and market sentiment are out of our control,” said Laura Cha, who is the chair of the Hong Kong stock exchange.

The IMF downgrades mainly reflected signs of weakness in Europe, with its export powerhouse German hurt by new fuel emission standards for cars and with Italy under market pressure due to Rome’s recent budget standoff with the European Union.

The worldwide lender also cited a bigger than expected slowdown in China’s economy and a possible “no deal” Brexit as risks to its outlook, saying these could worsen market turbulence.

A survey by auditing and accounting giant PwC of nearly 1,400 chief executives found that 29 percent believe global economic growth will decline over the next 12 months, the highest percentage since 2012.

While the most pronounced shift was among business leaders in the United States, the share of CEOs who expected growth to slow increased significantly across every region, it showed.

“It’s quite a reversal from last year and the gloomier mood cuts across just about everywhere in the world,” said Bob Moritz, who is the global chairman at PwC. “With the rise of trade tension and protectionism, it stands to reason that confidence is waiting.”

Tim Ryan, US Chairman of PwC, said, “We were a little bit spoiled by the environment the past six to eight years after the financial crisis,” describing an uncertain economy as the new normal. “People are getting used to the volatility.”

Fears of a global slowdown have jolted markets and forced the US Federal Reserve Bank to signal a pause in its interest rate hike cycle, as investors fret about increasing weak signs in China and the fallout from US-China trade tensions.

Data released on Monday showed that China’s economy cooled in the fourth quarter on faltering domestic demand and bruising US tariffs, dragging 2018 growth to the lowest in nearly three decades.

“Sometimes we spook ourselves, so it remains to be seen how slow is slow, how bad is bad, let’s see how the first quarter looks,” said Cha.

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