IMF reduces global growth forecast to 3.2 pct. due to political risks

Santiago — The trade war between the United States and China, the uncertainty created by Brexit and the tensions affecting the price of energy will reduce global growth by one-tenth of one percent this year to 3.2 pct., according to the report published Tuesday by the International Monetary Fund .

The new IMF World Outlook Report reduces its global economic projections not only for 2019 - by 0.1 percent from the level it forecast in April - but also for 2020, when it said the world economy will grow by 3.5 percent, also a 0.1 percent reduction from the previously predicted level.

This scenario of slightly lower growth, according to the multilateral organization, is also linked to the effect of the US threat of sanctions on the world production chain.

According to the data provided in the report, there were “positive surprises” in the developed economies - including the US, the Eurozone, Japan, the United Kingdom and Canada, mainly - which motivated the IMF to increase its 2019 growth predictions for this area to 1.9 percent while it maintained its growth outlook for 2020 at 1.7 percent.

At the same time, the emerging economies and developing economies are experiencing “weaker-than-expected activity,” which translates into a reduction in the IMF forecast from the 4.1 percent it set forth in April to 3.8 percent for this year, and from 4.7 percent down to 4.6 percent for 2020.

For the US, the IMF predicts growth of 2.6 percent in 2019 - 0.3 percent greater than the level forecast in April - and 1.9 percent for 2020, unchanged from the Fund’s viewpoint several months ago.

Regarding the Eurozone, the IMF maintained its prediction for 1.3 percent growth in 2019, identical to what it had said in April, but raised its outlook for 2020 to 1.6 percent from 1.5 percent.

Japan will grow by 0.9 percent in 2019 and 0.4 percent in 2020, according to the IMF, both of which are 0.1 percent drops from its earlier report.

The international organization expects China to grow at 6.2 percent in 2019 and 6 percent in 2020, each of these levels being 0.1 percent less than the April outlook.

The IMF also emphasized the “subdued” results for a good part of the emerging economies in Asia and Latin America.

Specifically, it said that it was drastically reducing its 2019 outlook for Latin America and the Caribbean by 0.8 pct - to 0.6 percent - from its April forecast, including substantial reductions for growth in Brazil, Mexico and Venezuela.

The IMF added that on the world level the data highlight a weakening in demand, especially in fixed investment, as well as an increase in the weight of the service sector over manufacturing, a process that began in 2018 and which has continued to date.

Both companies and individuals, the IMF added, are showing themselves to be reluctant to make long-term investments, especially due to elevated political uncertainty, which has weakened the figures for international trade, especially in the emerging Asian nations.

However, the scenario will improve in 2020 because of four factors, the IMF said: “(1) financial market sentiment staying generally supportive; (2) continued fading of temporary drags, notably in the euro area; (3) stabilization in some stressed emerging market economies, such as Argentina and Turkey; and (4) avoiding even sharper collapses in others, such as Iran and Venezuela.”