MNI POLICY: IMF Cuts Growth Forecasts As Trade Tensions Bite

--IMF Urges Undoing Trade Barriers, Fiscal Support

By Evan Ryser

     WASHINGTON (MNI) - The International Monetary Fund downgraded its 2019

global growth forecast to 3%, the slowest since the global financial crisis, in

the face of what it described as a "synchronized slowdown" prompted by rising

trade barriers and uncertainty, as well as low productivity growth in the rich

world.

     In its October World Economic Outlook, the IMF also cut its growth forecast

for 2020 by 0.2 percentage point to 3.4%, noting that next year's improved

performance would not be "broad based and is precarious," with advanced economy

growth stuck at 1.7%. Its forecast for this year was reduced by 0.3 percentage

point since its April report.

     Subdued growth is a "consequence of rising trade barriers; elevated

uncertainty surrounding trade and geopolitics; idiosyncratic factors;" and

structural factors such as low productivity growth, the IMF said.

     The IMF's October WEO forecasts U.S. growth at 2.4% in 2019, up from 2.3%

in April. It cut its forecasts for the E.U. to 1.2% from 1.3%, for Germany to

0.5% from 0.8%, and for Japan to 0.9% from 1.0%.

     "A notable feature of the sluggish growth in 2019 is the sharp and

geographically broad-based slowdown in manufacturing and global trade," the WEO

notes. "Trade volume growth in the first half of 2019 is at 1 percent, the

weakest level since 2012."

     While the WEO noted the services sector across much of the globe continues

to hold up, "the divergence between manufacturing and services has persisted for

an atypically long duration, which raises concerns of whether and when weakness

in manufacturing may spill over into the services sector."

     The IMF called for policies to reduce trade barriers and ease geopolitical

tensions. "Such actions can significantly boost confidence, rejuvenate

investment, halt the slide in trade and manufacturing, and raise world growth."

     It applauded central banks for acting pre-emptively to reduce risks to

growth and to prevent de-anchoring of inflation expectations.

     "In our estimate, in the absence of such monetary stimulus, global growth

would be lower by 0.5 percentage points in both 2019 and 2020," and this

stimulus "has therefore helped offset the negative impact of US-China trade

tensions, which is estimated to cumulatively reduce the level of global GDP in

2020 by 0.8 percent."

     But the IMF added "monetary policy cannot be the only game in town and

should be coupled with fiscal support where fiscal space is available and where

policy is not already too expansionary."

     "A country like Germany should take advantage of negative borrowing rates

to invest in social and infrastructure capital, even from a pure cost benefit

perspective," and if growth were to further deteriorate, an internationally

coordinated fiscal response may be required.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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