IMF projects a precarious global growth outlook for 2019

The International Monetary Fund downgrades the global growth to the lowest level ever since the last financial crisis

The connectedness of the global economy basically means that, more or less, we go through synchronized cycles of economic growth & slowdown. And right now we are seeing the move towards the latter. In the last World Economic Outlook (right side chart below), the IMF had projected a sluggish growth.

The latest quarterly outlook (left chart below) paints an even worse picture as the latest projections downgrade the growth number to 3% from the previous 3.2% — the slowest pace of growth since the financial crisis of 2008. What makes it worse is the rising trade tensions between the two largest economies of the United States & China. IMF estimates the cumulative effect of trade tensions would amount to a 0.8% global GDP reduction by 2020.

The growth is also being affected by country-specific factors in emerging markets, structural forces, external factors like Brexit in Europe & geopolitical tensions in the Middle East and low productivity & aging populations in advanced economies. The projected rebound in global growth has also been revised lower to 3.4% from the last quarterly estimate of 3.5%.

While the slowdown has been synchronized, the recovery in 2020 may not be as broad-based as expected due to the external factors described previously. The higher tariffs resulting from the trade war have caused a sharp deterioration in the manufacturing activity. The disruption in the global automotive industry owing to factors like new emissions standards has had an adverse effect on manufacturing. As per the report, the total trade volume has fallen by 1% in the first half of 2019 — the weakest level since 2012.