As many of the world’s leaders gather in Davos, Switzerland for the World Economic Forum, the IMF has downgraded its forecast for growth this year from 3.7% to 3.5%. The higher forecast was made as recently as October last year.
The IMF identifies tensions in global trade, most noticeably between the USA and China as a drag on the global economy (the value of the global economy is estimated to be roughly $80 trillion). They also suggest that Brexit is also likely to have a negative impact (not least in the UK and more so if exit is disorderly, of course…).
The IMF are predicting that the slowdown in the Chinese economy will continue (slowdown being a relative term) with growth this year at 6.2%. The UK is predicted to see growth of 1.5%, but emphasises that the estimate could change depending on circumstances (a no deal Brexit being a negative factor on UK growth). The German economy will also see a similar level of growth as changes to fuel emission standards in the wake of the Volkswagen scandal have a negative impact on export levels.
The IMF is urging a rapid resolution for global trade disputes:
"The main shared policy priority is for countries to resolve co-operatively and quickly their trade disagreements and the resulting policy uncertainty, rather than raising harmful barriers further and destabilising an already slowing global economy".
Concerns over trade wars had already led the IMF to trim its forecast for global growth in its October report and this drag is further reflected in the current estimate.
The IMF's chief economist, Gita Gopinath noted: "While financial markets in advanced economies appeared to be decoupled from trade tensions for much of 2018, the two have become intertwined more recently, tightening financial conditions and escalating the risks to global growth."
Of course, both Brexit and the US-China trade war are the result of political decisions taken in the UK and US respectively and, potentially at least, both could be resolved because of domestic political pressure.