Growth ‘pain’

The economy is expected to shrink by -0.1 per cent this year before bouncing back with a tiny 0.6 per cent growth next year, the International Monetary Fund (IMF) has said.

At the same time, the international financial institution said it expected a further slowdown in the global economy, while warning policymakers that there was no room for mistakes and declared an urgent need for policies that supported economic growth.

The new economic forecast was outlined in the IMF’s October 2018 World Economic Outlook released today, as the IMF predicted global growth to reach 3 per cent at the end of this year, down from the estimated 3.3 per cent predicted back in April and 3.2 per cent forecast back in July.

Modest recovery to 3.4 per cent was projected for 2020, which is 0.2 per cent lower than the IMF’s April projections.

Delivering remarks this morning at the IMF’s headquarters ahead of the release of the document titled Global Manufacturing Downturn, Rising Trade Barriers, the IMF’s Chief Economist Gita Gupinath said the world economy was in a “synchronized slowdown and we are once again downgrading growth to three per cent”.

Gopinath said: “The global outlook remains precarious with a synchronized slowdown and an uncertain recovery.

“At three per cent growth, there is no room for policy mistakes and an urgent need for policymakers to support growth.

“The global trading system needs to be improved, not abandoned.

“And countries need to work together because multilateralism remains the only solution to tackling major issues such as risks from climate change, cyber security risks, tax avoidance and tax evasion, and the opportunities and challenges of emerging financial technologies.”

The IMF chief economist said growth continued to be weakened by rising trade barriers and growing political tensions, adding that the IMF estimated that the US/China trade tensions would cumulatively reduce the level of global gross domestic product (GDP) by 0.8 per cent by 2020.

“Growth is also being weighed down by country specific factors in several emerging markets and developing economies, and also by structural forces such as low productivity growth and aging demographics in advanced economies.

“The weakness in growth is driven by sharp deterioration in manufacturing and global trade, with higher tariffs and prolonged trade policy uncertainty, damaging investment and the demand for capital goods.”

The automobile industry was also contracting due to a number of factors, Gopinath pointed out.

She said overall trade volume growth in the first half of 2019 had fallen to one per cent, the weakest level since 2012.

She also noted that in contrast to weak manufacturing and global trade the services sector continued to hold up “almost across the globe”.

The chief economist said in order to rejuvenate growth policymakers “must undo the trade barriers put in place” and replace them with durable agreements, rein in geopolitical tensions and reduce domestic policy uncertainty.

She said: “Such actions can help boost confidence and reinvigorate investment, manufacturing, and global trade.

“To fend off other risks to growth, and to raise potential output, economic policy should support activity in a more balanced manner.

“Monetary policy cannot be the only game in town. It should be coupled with fiscal support, where fiscal space is available and fiscal policy is not already too expansionary.”

She said countries should simultaneously undertake structural reforms to raise productivity, resilience and equity, adding that they were effective when good governance was in place. marlonmadden@barbadostoday.bb