A sharp deceleration of global trade driven by ongoing trade tensions is slowing the global economy more than earlier projections, according to the latest forecasts of the International Monetary Fund.
Real global economic growth will slow to 3.2% this year, 0.1 percentage point slower than forecast in April, and down from 3.6% last year and 3.8% in 2017, according to the quarterly update to the IMF’s flagship World Economic Outlook, released Tuesday.
The slowdown in growth and downgrade in the forecast reflect the ongoing fallout from trade tensions. Since the IMF’s last round of forecasts in April, three more months of data have confirmed weaker growth in much of the world, while tariffs escalated between the U.S. and China during a two-month breakdown in negotiations.
Global trade has decelerated rapidly during the ongoing trade tensions. The IMF now projects world trade will grow 2.5% in 2019, a downgrade of nearly a full percentage point in the forecast since April. Earlier forecasts had anticipated a slowdown, but not this sharp. As recently as 2017, global trade in goods and services was growing at a robust 5.5%.
“Global growth is sluggish and precarious, but it does not have to be this way because some of this is self-inflicted,” said Gita Gopinath, the IMF’s chief economist.
“Dynamism in the global economy is being weighed down by prolonged policy uncertainty as trade tensions remain heightened despite the recent U.S.-China trade truce,” she said, referring to an agreement in late June between President Trump and China’s President Xi Jinping to return to negotiations after two months of escalating tariffs.
She also cited risks to the economy from tensions over technology companies, and the prospect of a disorderly Brexit if the U.K. leaves the European Union without agreeing to a deal with the bloc.
The downgrades in growth were largely concentrated in emerging markets, with growth in India down 0.3 percentage points from earlier forecasts, Russia down 0.4 points, Mexico down 0.7 points and Brazil down 1.3 points.
Advanced economies fared relatively better in this round of forecasts. The U.S. and euro area are expected to grow more slowly than in 2018, but the U.S. slowdown is now forecast to be less pronounced than in the April round of forecasts while Europe’s outlook was unchanged.
The IMF’s outlook, which now reflects data through mid-July, adds to evidence that trade tensions are continuing to ripple around the world.
A separate report from the World Trade Organization, released on Monday, showed the extent to which trade protectionism has continued to increase. The WTO said in its mid-year monitoring report that, since October, trade restrictions were applied to approximately $340 billion a year of trade.
Those new trade restrictions were the second-highest figure on record, surpassed only by the $588 billion in restrictions reported in its previous monitoring report. “Together, these two periods represent a dramatic spike in the trade coverage of import-restrictive measures,” said the WTO, which counts tariffs, import bans, special safeguards, import taxes and export duties among the restrictions that it tracks.
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