Confirming Director Lagarde’s warning that “clouds on the horizon have materialized,” The International Monetary Fund is downgrading its outlook for the world economy, citing rising interest rates and growing tensions over trade.
The IMF said Monday that the global economy will grow 3.7 percent this year, the same as in 2017 but down from the 3.9 percent it was forecasting for 2018 in July.
It slashed its outlook for the 19 countries that use the euro currency and for Central and Eastern Europe, Latin America, the Middle East and Sub-Saharan Africa.
Given the actual global data, The IMF and consensus have a long way to go…
Furthermore, The IMF expects the U.S. economy to grow 2.9 percent this year, the fastest pace since 2005 and unchanged from the July forecast.
But it predicts that U.S. growth will slow to 2.5 percent next year as the effect of recent tax cuts wears off and as President Donald Trump’s trade war with China takes a toll.
As The IMF blog details, 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.
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