Economic Growth Slows to 2008 Great Recession Levels, IMF Says

Written By
G. Dautovic
October 16,2019

The International Monetary Fund has further downgraded its outlook for the global economy, projecting that this year’s growth will be the slowest since the Great Recession of 2008.

The IMF’s World Economic Outlook report says the world economy is in a “synchronized slowdown” as growth continues to be weakened by rising trade barriers and geopolitical tensions. Because of the apparent widening of these conflicts, the new forecast predicts 3% global growth this year, down 0.2% from the July forecast and significantly below 2018’s 3.6% growth.

US-China trade tensions are the main force behind the slowdown, the IMF says, cumulatively reducing the level of global GDP by 0.8% by 2020. Other factors slowing global growth are the shrinking automobile industry and a diminishment of manufacturing activity, combined with an aging population in advanced economies.

Experts cautioned that even these low projected gains may not be realized.

"With a synchronized slowdown and uncertain recovery, the global outlook remains precarious," said IMF chief economist Gita Gopinath. “At 3% growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively de-escalate trade and geopolitical tensions.”

The report singled out the US economy as a rare bright spot on the global stage, projecting that the United States will be the only G7 nation with GDP growth above 2%. The US forecast for 2019 is now 2.4%, 0.2% lower than July’s forecast.

"For the United States, trade-related uncertainty has had negative effects on investment,” Gopinath said. “But employment and consumption continue to be robust, buoyed also by policy stimulus."

Gopinath noted that global growth would have been about 0.5% lower this year and in 2020 without efforts from the Federal Reserve and other central banks that have been cutting interest rates to bolster national economies.

“It is important to keep in mind that the subdued world growth of 3% is occurring at a time when monetary policy has significantly eased almost simultaneously across advanced and emerging markets,” Gopinath said. “The absence of inflationary pressures has led major central banks to move preemptively to reduce downside risks to growth and to prevent de-anchoring of inflation expectations, in turn supporting buoyant financial conditions.”

Gopinath warned that monetary policy “cannot be the only game in town” and that countries like Germany should take advantage of low rates to make investments to support growth: “With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot.”

In contrast to the United States, China earned a highly pessimistic forecast, with growth expectations slashed by 0.3% this year and 0.2% in 2020, dropping to a 5.8% growth rate, the slowest rate since 1990. China has been hit hard by tariffs imposed by the Trump administration, and domestic demand is also winding down - a trend that is spreading downward revisions throughout Asia.

With another disruptive threat looming on the horizon in the form of Britain’s exit from the European Union on October 31, the IMF urged policymakers to intensify efforts to avoid economically damaging mistakes.

“As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list,” Gopinath said. “Such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing, and raise world growth.”

Gopinath repeated the warning that a no-deal Brexit would reduce growth in the UK by 3% to 5% over two years, depending on the level of disruption. Britain’s growth rate is predicted to be 1.2% in 2019, the same as France’s, and still stronger than Japan’s (0.9%), Germany’s (0.5%) and Italy’s (0%).

For 2020, the IMF projects global growth of 3.4% thanks to economic recoveries and better performance in Brazil, Mexico, Russia, Saudi Arabia, and Turkey.

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

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