IMF: Trade wars could make sluggish global economy worse
The global economy is still sluggish — and an improvement in 2020 is not a sure bet.
That’s according to the latest outlook from the International Monetary Fund, which on Tuesday downgraded its global growth forecast for 2019 and 2020 because growth stays “subdued” and trade remains under pressure.
The agency now forecasts that growth will hit 3.2% in 2019 before rising to 3.5% in 2020. Both projections are 0.1 percentage points lower than in April.
The IMF said that the projected pickup in 2020 is “precarious,” and assumes that the environment for emerging markets improves and progress is made toward resolving trade tensions.
“If the current tariffs continue to be in place, and if there is a further escalation that includes all of trade between the US and China, then that would shave off about half a percent from the level of global GDP in 2020,” Gita Gopinath, the IMF’s chief economist, told CNN Business’ Julia Chatterley.
The United States and China agreed to restart trade talks last month following a meeting between President Donald Trump and Xi Jinping, his Chinese counterpart, at the G20 summit.
But tariffs on hundreds of billions worth of goods remain in effect.
The IMF also warned about potential US tariffs on auto imports and a disorderly Brexit, which it said would “sap confidence, weaken investment, dislocate global supply chains and severely slow global growth.”
Gopinath said that looser central bank policy would not be enough to deal with such risks.
“It is not going to be enough for monetary policy to be the only game in town,” she said, calling on countries to consider government spending hikes to increase long-term growth.
One brighter spot is the US economy. The IMF upgraded its expectations for 2019 growth to 2.6% from 2.3% in light of a stronger-than-expected first quarter.