According to the International Monetary Fund’s (IMF) latest World Economic Outlook report released on Tuesday, the global economy is now expected to grow at a rate of 3.7% this year and the next – down 0.2 percentage points from its previous forecast in April.
The IMF has cut its global growth forecasts as trade tensions between the United States and trade partners (mainly China) have started to impact economic activity on a global scale. Revisions for emerging and developing economies are larger than in the advanced economies because they experienced large volumes of capital outflows. This is due to a wave of investors shifting their money out on the back of rising interest rates in the United States. Indeed, the IMF said in the report that the downward revisions were notable in several countries: in 2018, Argentina (-2.6%), Brazil (-0.4 pp to 1.4%), Mexico (-0.1 pp to 2.2%), Iran (-1.5%) and Turkey (3.5%).
“The impacts of trade policy and uncertainty are becoming evident at the macroeconomic level, while anecdotal evidence accumulates on the resulting harm to companies. Trade policy reflects politics, and politics remain unsettled in several countries, posing further risks,” said Maurice Obstfeld, IMF chief economist. “Two major regional trade arrangements are in flux – NAFTA (where a new trilateral agreement awaits legislative approval) and the European Union (with the latter negotiating the terms of Brexit). United States tariffs on China, and more broadly on auto and auto part imports, may disrupt established supply chains, especially if met by retaliation,” he added.
At the end of the day, the IMF is still lagging in its forecasts, but the tension sources are now well highlighted.
Julien Moussavi, Head of Economic Research - Sources: Beyond Ratings, Datastream