Will There Be A Global Recession? US-China Trade War, Political Uncertainties Add To Predicted Slower Growth

The International Monetary Fund Tuesday predicted global growth of just 3% for 2019, its lowest level since 2008-09 in the depths of the global recession, in what it described as a “synchronized slowdown” and a serious step down from 2017’s 3.8% pace.

The forecast in the October World Economic Outlook was 0.3 of a point lower than the April forecast. The projection for 2020 also was revised downward by 0.2 point to 3.4%, largely because projected slowdowns in China and the United States will offset gains in Latin America, the Middle East and emerging and developing countries in Europe.

“With a synchronized slowdown and uncertain recovery, the global outlook remains precarious. At 3% growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively de-escalate trade and geopolitical tensions,” the report said.

The biggest downward revisions for growth were for advanced economies in Asia, including Hong Kong, South Korea and Singapore, a result of spillover from the U.S.-China trade war.

“This subdued growth is a consequence of rising trade barriers, elevated uncertainty surrounding trade and geopolitics, idiosyncratic factors causing macroeconomic strain in several emerging market economies, and structural factors, such as low productivity growth and aging demographics in advanced economies,” the report said.

The report noted automation, not trade shocks, have the greatest impact on labor markets in advanced economies.

Global growth has fallen sharply in the past year, amid regional disparities and growing social and political tensions.

“A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade,” the report said. “A few factors are driving this. Higher tariffs and prolonged uncertainty surrounding trade policy have dented investment and demand for capital goods.”

The bright spot, the reported noted, is the services sector, which benefits the labor market and wage growth in advanced economies.

Structural reforms in emerging market and developing economies have slowed, depressing gross domestic product gains.

In the United States, trade uncertainty is depressing investment but employment and consumption “continue to be robust buoyed by policy stimulus,” but the euro area is experiencing weak exports and Brexit-related uncertainty, particularly related to supply chains.

The report also cited climate change risks, which “are playing out now and will dramatically escalate in the future, if not urgently addressed.”

The report called for an “undoing of trade barriers” and a “reining in [of] geopolitical tensions” to help reverse the downward trend.