March 3, 2021

The IMF downgrades global growth prospects for trade war | Economy

The IMF downgrades global growth prospects for trade war | Economy


The expansion continues but weakens faster than expected just a few months ago, according to the new chief economist of the IMF, Gita Gopinath, admitted in Davos on Monday. And although the reduction is modest (two tenths this year and another tenth for 2020, up to 3.6%) the growing link between commercial tensions and financial markets in a scenario of tightening of financial conditions, it considerably increases the downside risks for this year.

In the case of Spain, the forecasts remain unchanged at 2.2% for this year and 1.9% for 2020.

"Trade and investment have slowed down, industrial production outside the US has slowed down and purchasing managers' indexes have weakened, pointing to a weaker overall scenario. Although that does not mean that we are at the doors of one, it is important to take note of the many upside risks that exist, "Gopinath stressed. Among these risks, the Fund stresses the possibility of the UK leaving the European Union without an agreement and a deceleration higher than expected in China.

In 2018, the Chinese authorities undertook reforms to regulate shadow banking and the non-budgetary investment of local governments that slowed their growth, but the trade escalation with the US has forced Beijing to reverse those policies and approve measures of stimulus to soften the braking. But it may not be enough. "Its deceleration could be faster than expected if commercial tensions continue and this could lead to abrupt sales in the financial and commodities markets, as happened in 2015-2016," warns the chief economist.

IMF downgrades world growth prospects for trade war

These threats are compounded by the uncertainty surrounding the political agenda of the new governments, as in Brazil or Mexico, the closure of the Administration in the US and the geopolitical tensions in the Middle East and Southeast Asia.

Hence, the Fund proposes greater international cooperation, a recipe that is losing adherents by leaps and bounds. "The main political priority is for countries to quickly and cooperatively resolve their trade disagreements and the resulting political uncertainty, rather than lifting harmful barriers and destabilizing a weakened global economy," Gopinath said.

Among the developed countries, it is the Eurozone that undergoes a major revision of its growth prospects (three tenths less than expected in October, up to 1.6%), due to the difficulties of the automotive sector in Germany (whose growth falls six tenths to 1.3%) and the renewed financial and sovereign tensions in Italy, which will barely grow by 0.6% this year. In the case of the emerging countries, it is Turkey and Mexico that underpin the downgrade of forecasts, forecasting a recession greater than expected in the first and a drop in private investment in the second. It is significant that in the case of Mexico, with a new government since last December, the IMF foresees a slowdown (four tenths this year and a half point next, to 2.1% and 2.2% respectively) and for Brazil, whose new Executive took office last day 1, trust that the recovery will continue (with a growth of 2.5% this year, one tenth more than expected, and 2.2% for 2020, a tenth less).

After years out of focus, after the essential role that they maintained during the Great Recession, the Fund launches a warning to central bankers, that this year are absent from Davos. "Monetary policy in developed economies should continue to be normalized with care. The main central banks are aware of the moment of deceleration and we hope that they calibrate their next steps in line with these events, "said Gopinath. An argument that, saving the distances, approaches the declarations of the American president Donald Trump when criticizing the rises of types of the Federal Reserve and that picks up the feeling of the market that there will not be new increases of the price of the money in EE UU in the most of this exercise.

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