The global lender cut said key risks included a US-China trade war and a potentially disorderly Brexit.
Washington DC: The International Monetary Fund on Tuesday warned that global economic growth was slowing more than expected and that a sharp downturn could require world leaders to coordinate stimulus measures.
The global lender cut its global economic growth forecasts for 2019 and said key risks included a US-China trade war and a potentially disorderly British exit from the European Union.
The IMF said it still expects that a sharp slowdown in Europe and some emerging market economies will give way to a general re-acceleration in the second half of 2019.
“This is a delicate moment for the global economy,” IMF chief economist Gita Gopinath said in a news conference.
Gopinath said a sharp downturn might require synchronized fiscal stimulus “across economies” as well as loose monetary policy.
The projected growth rate for next year was unchanged at 3.6 percent.
More than two-thirds of the expected slowdown in 2019 owes to trouble in rich nations.
One potential misstep lies in Britain`s indecision over how to leave the EU. Despite looming deadlines, London has not decided how it will try to shield its economy during the exit process. The IMF`s new forecast assumes an orderly “Brexit,” but the Fund said a chaotic process could shave more than 0.2 percentage points from global growth in 2019.
The IMF said the Bank of England should be “cautious” on its interest rate policy, an apparent tip to wait before hiking borrowing costs.
Germany`s outlook suffered from weaker demand for its exports, softer consumer spending and new emissions standards that have depressed car sales.
Germany may have to quickly turn to fiscal stimulus measures, the IMF said, also calling on the European Central Bank to keep stimulating the regional economy. The IMF also cut Japan`s growth outlook following a string of natural disasters.
US Treasury yields slid on concerns about the global economic outlook while the S&P 500 index and the Dow Jones Industrial Index were down more than half a per cent amid worries that a U.S. threat to slap tariffs on hundreds of European goods would be a further economic drag.
BOOST FROM FED PAUSE
The global lender said it was slightly boosting its outlook for Chinese growth this year – to 6.3 percent – in part because an expected escalation in the U.S.-China trade war did not materialize.
Still, America`s ongoing tensions with China and other major trading partners remain a risk for the global economy.
In a World Economic Outlook chapter released last week, the IMF said an escalation of the US-China trade war would drive manufacturing away from both countries and cause job losses, but would do little to change their total trade balances.
If 25 percent tariffs were imposed on all trade between the world`s two largest economies, US GDP would fall by up to 0.6 percent and China`s would fall by up to 1.5 percent, the IMF said.
China was trying to rebalance its massive economy away from investment and exports when U.S. President Donald Trump ordered higher tariffs on Chinese imports beginning in 2018. China responded with retaliatory tariffs on US goods.
In an ominous sign, the IMF said Beijing might need to unleash fiscal stimulus “to avoid a sharp near-term growth slowdown that could derail the overarching reform agenda.”