August 3, 2021

The IMF cuts its world growth forecasts to 3.7% – The Province

The IMF cuts its world growth forecasts to 3.7% - The Province

HeInternational Monetary Fund(IMF) has revised two tenths downward its global growth prospects for this year and the next, when it expects the world economy will register aannual expansion of 3.7%, in line with the data for 2017, as a result of the deterioration in expectations for the euro zone and the United Kingdom, as well as for emerging economies, particularly Latin America and Turkey, while the institution trusts that the US will maintain "for now" a growth"exceptionally robust".

In the case of Spain, as the IMF announced last week, the rate of expansion of the economy in 2018 will be one tenth lower than anticipated last April, standing at 2.7%, while the institution has kept thegrowth forecast of 2.2% for 2019.

"Storms are coming," IMF chief economist Maurice Obstfeld warned during the presentation of the latest edition of the report.'World Economic Perspective'(WEO), adding that growth has proved less balanced than expected in April, when the Fund had forecast an expansion of global GDP of 3.9% in 2018 and 2019. "Instead of increasing, growth has stagnated at 3.7%, "he acknowledged.

In fact, Obstfeld, in his farewell as chief economist of the IMF, has pointed out that not only some downside risks identified in the latest WEO report have materialized, but also increased the probability of additional shocks that affect the expected growth, since that in several key economies the growth"is being supported by policies that seem unsustainable in the long term", which increases the urgency for political leaders to take action.

In this way, the longer-term projections of the IMF contemplate a deceleration of the global growth of the economy to 3.6% between 2022 and 2023, largely as a result of the expected moderation in the potential growth of the advanced economies, which in 2018 will grow 2.4% and 2.1% next year, which represents a reduction of one tenth in both cases in relation to the forecasts of last April.

More marked is the reduction in growth forecasts for emerging economies, which the IMF puts at 4.7% both in 2018 and 2019, whichsupposes a reduction of two and four tenthsrespectively compared to the forecasts published last spring.

The IMF notes that the latest data shows the weakening of trade, manufacturing production and investment, although the institution maintains that the global economy is solid compared to the first years of this decade, although it seems to have stalled.

In this sense, the weakening of growth projections reflects an increase in uncertainty about the policies applied in the last year, including the uncertainty about trade as a result of the US measures and the response of its trading partners, in addition to the risk that represents a potential failure of the negotiations on the'Brexit', together with the tightening of financial conditions for emerging economies in the face of the progressive rise inUS interest ratesand the end of the asset purchase program of the European Central Bank (ECB).

"With geopolitical tensions also relevant in different regions, we consider that, even in the short term, the possibility of unpleasant surprises exceeds the probability of unforeseen good news," the institution points out.

End of fiscal stimulus in the US

In the case of the US, the IMF maintains aexpectation of growth of 2.9% this year,but it has cut two tenths its forecast for 2019, to 2.5%, warning that the positive impulse derived from the recent fiscal reform implemented will have a neutral effect in 2019, while from 2020 the fiscal policy will be contractive as a consequence of the exhaustion of these stimuli.

"In 2019, it is expected that the recent trade measures will weigh down the economy, particularly in the US, where projections have been cut by two tenths," warns the IMF.

In addition, the Fund's forecasts anticipate a gradual rise in US interest rates. In this way, the price of moneywill reach 2.5% by the end of 2018and will rise to 3.5% by the end of 2019, thus assuming eight increases in interest rates during the period analyzed. 2018-19).

Regarding the euro zone, the new forecasts of the IMF represent a two-tenths decline in the growth forecast for the region in 2018, up to 2%, while confirming an expansion of 1.9% next year, after reduce by three and two tenths of a second the projections of Germany, up to 1.9% in 2018 and 2019, while France has seen its growth forecast for this year reduced by two tenths, up to 1.6%, and by one tenth next year, also up to 1.6%.


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