The IMF on Monday trimmed its global growth forecasts and a survey showed increasing pessimism among business chiefs as trade tensions and uncertainty loomed over the world’s biggest annual gathering of the rich and powerful.
The gloomy IMF forecasts, released on the eve of the World Economic Forum in Davos, Switzerland, highlighted the challenges facing policymakers as they tackle an array of actual or potential crises, from the US-China trade spat to Brexit.
“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” IMF managing director Christine Lagarde told reporters.
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“Does that mean a global recession is around the corner? No, but the risk of a sharper decline in global growth has certainly increased,” she said, urging policymakers to brace for a “serious slowdown.”
In its World Economic Outlook report released on Monday, the IMF predicted that the global economy will grow 3.5 percent this year and 3.6 percent next year, down 0.2 and 0.1 percentage points respectively from October last year’s forecasts.
The IMF downgrades mainly reflected signs of weakness in Europe, with its export powerhouse Germany hurt by new fuel emission standards for cars and with Italy under market pressure due to Rome’s budget standoff with the EU.
The global lender also cited a bigger-than-expected slowdown in China’s economy and a possible “no deal” Brexit as risks to its outlook, saying that these could worsen market turbulence.
A survey by auditing and accounting giant PricewaterhouseCoopers (PwC) of nearly 1,400 chief executives found that 29 percent believe global economic growth will decline over the next 12 months, the highest percentage since 2012.
While the most pronounced shift was among business leaders in the US, the share of chief executive officers who expected growth to slow increased significantly across every region, it showed.
“It’s quite a reversal from last year and the gloomier mood cuts across just about everywhere in the world,” PwC global chairman Bob Moritz said. “With the rise of trade tension and protectionism, it stands to reason that confidence is waning.”
“We were a little bit spoiled by the environment the past six to eight years after the financial crisis,” PwC US chairman Tim Ryan said, describing an uncertain economy as the new normal. “People are getting used to the volatility.”
Fears of a global slowdown have jolted markets and forced the US Federal Reserve to signal a pause in its interest rate hike cycle, as investors fret about increasing weak signs in China and the fallout from Sino-US trade frictions.
Data released on Monday showed China’s economy cooled in the fourth quarter of last year on faltering domestic demand and bruising US tariffs, dragging last year’s growth to the lowest in nearly three decades.
The IMF cut its growth projections for the eurozone and developing countries, while maintaining its forecast for a 2.5 percent expansion in the US this year.
It also kept its China growth forecast at 6.2 percent for both this year and next year, but said economic activity could miss expectations if trade tensions persist, even with state efforts to spur growth by boosting fiscal spending and bank lending.
“As seen in 2015-16, concerns about the health of China’s economy can trigger abrupt, wide-reaching sell-offs in financial and commodity markets that place its trading partners, commodity exporters, and other emerging markets under pressure,” it said.
Britain is expected to achieve 1.5 percent growth this year, although there is uncertainty over the projection, which is based on the assumption of an orderly exit from the EU, it said.
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