(AP Photo/Cliff Owen)

The International Monetary Fund in its forecast for the world economy has predicted that growth in The International Monetary Fund in its forecast for the world economy has predicted that growth in 2019 will be at the weakest pace in three years. It has also warned that fresh trade tensions would spell further trouble. This is the second downgrade in three months.

The global lender has blamed softening demand across Europe and recent palpitations in financial markets. The global growth prediction of 3.5 per cent for this year is beneath the 3.7 per cent – the rate in 2018 and expected in October.

This point of view is probably more positive than that of many investors who openly fear a U.S.-led slowdown taking hold. Projections for the U.S. (2.5 per cent. Growth is likely to cool to 1.8 per cent in 2020) and China have been left unchanged and the fund even anticipates an improvement in worldwide expansion next year to 3.6 per cent.

In a report which came hours after China revealed the slowest expansion since 2009 last quarter IMF said risks nevertheless “tilt to the downside”. The report cited threats such as more trade tariffs, a renewed tightening of financial conditions, a “no-deal” Brexit and an unforeseen slowdown in China.

The IMF still has expectations of expansion 6.2 per cent for China this year after 6.6 per cent in 2018. A slowdown due to the trade war and the government attempting to pare leverage.
“It is important to take stock of the many rising risks”, said Gita Gopinath (new chief economist for the fund).

Christine Lagarde (Managing Director – IMF) said on Monday that the risk of a sharper slowdown in global growth had increased. Despite the fact that a recession was not yet around the corner. Speaking at the World Economic Forum after the 2019 and 2020 global growth forecasts were trimmed by the IMF, she urged policymakers to address economic vulnerabilities.

The deepest revision was for the German economy, which the IMF now sees expanding 1.3 per cent this year – a reduction of 0.6 percentage point from October. The shift was caused by soft consumer demand and weak factory production after stricter emission standards for cars was introduced.

Forecasts for Italy were also cut citing weak demand and higher sovereign borrowing costs. The so-called Yellow-Vest protests have also hurt the economy for France. The overall euro area will grow 1.6 per cent (0.3 points below previously thought) this year.

The IMF noted that while some of the Europe issues were temporary they came amid a backdrop of global trade policy uncertainty along with concerns about China’s outlook. After imposing tariffs on each other last year, Presidents Trump and Jinping have given their officials until March 1 to reach a deal for a lasting truce.

The IMF said: “The possibility of tensions resurfacing in the Spring casts a shadow over global economic prospects.” Global trade volumes are predicted to rise 4 per cent this year and next, the same pace as in 2018 but below 2017 (5.3 per cent).
Mexico’s prospects were downgraded by up to half a percentage point while the IMF said that a slump in Venezuela may be deeper than previously anticipated.