Despite all the Noise, IMF Expects 3.9% Growth This Year
Jul 17, 2018
Trade tensions have been making headlines for months now, and coupled with other political conflicts it may seem like the global economy doesn’t have much growth left in store for us. Although it might seem this way, global economic growth is proving to remain strong. The International Monetary Fund (IMF) stated that the global economy is on course to grow 3.9% throughout next year.
This growth forecast, the best since 2010 and 2011, however is not as evenly spread out between countries as it has been in the past. Major issues such as the U.S.-led trade confrontations pose significant risk to this growth forecast. The United States has threatened hundreds of billions of dollars in tariffs to Chinese imports, but so far, the only major actions that have been realized were ~$34 billion in Chinese goods, and of washing machines and solar panels. The IMF estimates that if all these trade threats are put into place, it would be “the greatest near-term threat to the world’s growth,” and could reduce the global economic growth projections by 0.5%, or roughly $430 billion by 2020. The United States could face the brunt of this as it is especially vulnerable to further retaliation from affected countries.
The United States economic growth forecast has remained unchanged from its April estimate of 2.9%. Canada’s forecast also remained unchanged, while Japan’s outlook has been lowered by 0.2%. Additionally, Eurozone forecasts have also been lowered by 0.2% from 2.4% to 2.2%, with Britain’s growth forecast to slow from 1.6% in April to 1.4%. The IMF noted the risks associated with Brussels and Westminster neglecting to make any further progress with Brexit.
Emerging markets growth forecasts have been largely unchanged too, with Latin American growth forecasts being dampened due to their currencies taking big hits, but oil-producing Middle East countries have offset this with accelerated growth.
Taking all this into consideration, director of global macro research for Oxford Economics Ben May stated that “… we remain cautiously optimistic despite the recent global protectionist spats,” and that recent data suggests “only a moderate loss of growth momentum from a solid starting point.” This is backed up by the fact that labor-force participation rates throughout many advanced economies have continued to rise and that some surveys show that businesses still have positive outlooks on investment intentions.
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