IMF: Global Growth Plateaus as Economic Risks Materialize
The latest World Economic Outlook report projects that global growth will remain steady over 2018–19 at last year’s rate of 3.7 percent. This growth exceeds that achieved in any of the years between 2012 and 2016. It occurs as many economies have reached or are nearing full employment and as earlier deflationary fears have dissipated. Thus, policymakers still have an excellent opportunity to build resilience and implement growth-enhancing reforms.
Last April, the world economy’s broad-based momentum led us to project a 3.9 percent growth rate for both this year and next. Considering developments since then, however, that number appears over-optimistic: rather than rising, growth has plateaued at 3.7 percent.
And there are clouds on the horizon. Growth has proven to be less balanced than hoped. Not only have some downside risks that the last WEO identified been realized, the likelihood of further negative shocks to our growth forecast has risen. In several key economies, moreover, growth is being supported by policies that seem unsustainable over the long term. These concerns raise the urgency for policymakers to act.
Growth in the United States, buoyed by a procyclical fiscal package, continues at a robust pace and is driving US interest rates higher. But US growth will decline once parts of its fiscal stimulus go into reverse. Notwithstanding the present demand momentum, we have downgraded our 2019 US growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China’s retaliation. China’s expected 2019 growth is also marked down. Domestic Chinese policies are likely to prevent an even larger growth decline than the one we project, but at the cost of prolonging internal financial imbalances.
Overall, compared with six months ago, projected 2018–19 growth in advanced economies is 0.1 percentage point lower, including downgrades for the euro area, the United Kingdom, and Korea. The negative revisions for emerging market and developing economies are more severe, at -0.2 and -0.4 percentage point, respectively, for this year and next year.
These revisions are also geographically diverse, encompassing important economies in Latin America (Argentina, Brazil, and Mexico), emerging Europe (Turkey), south Asia (India), east Asia (Indonesia and Malaysia), the Middle East (Iran), and Africa (South Africa)—although Nigeria, Kazakhstan, Russia, and Saudi Arabia are among the petroleum exporters that will benefit from higher oil prices. Broadly speaking, however, we see signs of lower investment and manufacturing, coupled with weaker trade growth.
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