Tuesday 15 October 2019 2:00 pm

IMF warns 2019 global growth will fall to lowest since financial crisis

Global economic growth will be just three per cent this year, the International Monetary Fund (IMF) has predicted, its lowest level since the financial crisis and a downgrade from the organisation’s April prediction.

Read more: IMF chief says trade wars to cost global economy $700bn

The “big four” developed economies of the US, China, the Eurozone and Japan will see growth slow into 2020 and beyond, the IMF warned, even as emerging economies such as Argentina and Iran recover.

The IMF’s world economic outlook report pointed the finger squarely at trade tensions as the main explanation for lacklustre global growth. Yet the lender of last resort also said Brexit uncertainty and debt reforms in China had been a factor.

“Higher tariffs and prolonged uncertainty surrounding trade policy have dented investment and demand for capital goods,” said IMF chief economist Gita Gopinath. This has led to a slump in manufacturing and trade that has driven a “synchronised slowdown,” she said.

Global manufacturing activity has fallen to financial crisis levels. Closely related, trade volumes grew at one per cent in the first half of the year, the weakest level since 2012.

The IMF, which is holding its annual meeting this week with sister institution the World Bank, predicted that global growth will improve slightly to 3.4 per cent in 2020. This is a 0.2 percentage point downgrade from its April forecast, however.

Yet the mild recovery will not be broad-based, the IMF warned. “Growth is expected to moderate into 2020 and beyond for a group of systemic economies comprising the United States, euro area, China, and Japan.” The Fund said these countries are slowing “toward their long-term potential”.

The IMF warned that a further escalation of the US-China trade war or a hard Brexit are among the many risks that could derail recovery. The Washington-based organisation called on governments and central banks to act to keep growth on track.

It praised the role of ultra-low interest rates, saying that in the absence of record levels of monetary stimulus, “global growth would be lower by 0.5 percentage points in both 2019 and 2020”.

But the Fund 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.”

Read more: Gloom thickens over Eurozone economy as German factory orders tumble

“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.”

(Image credit: Getty)