The IMF downgraded world growth for 2019 to 3 percent, the slowest pace since the global financial crisis, in its October World Economic Outlook. 

File photo: VCG

IMF chief economist Gita Gopinath said at a press conference that the weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods. 

The growth of advanced economies continues to slow down, which has been downgraded to 1.7 percent for 2019, compared to 2.3 percent in 2018. And growth in emerging market and developing economies has also been revised down to 3.9 percent for 2019 from 4.5 percent in 2018. But the world economy is estimated to recovery with a modest improvement in global growth to 3.4 percent which is not broad-based and remains precarious, mainly driven by emerging market and developing economies.

Manufacturing is extremely weak, such as in the automobile industry, while the services sector continues to hold up almost across the globe. But there are some initial signs of softening in the services sector in the United States and Europe. The major downside risks to growth heightened trade and geopolitical tensions, including Brexit-related risks, which have derailed an already fragile recovery in emerging market economies and Europe.  

IMF called on policymakers to undo the trade barriers with durable agreements, rein in geopolitical tensions, and reduce domestic policy uncertainty. 

As to a possible trade deal between China and the United States, Gopinath said the IMF is looking forward to more details, but welcomes any step to de-escalate tensions and to roll back recent trade measures.

In addition, monetary policy should be coupled with fiscal support where fiscal space is available, and policy should not be too expansionary. “While monetary easing has supported growth, it is essential that effective macro-prudential regulation be deployed today”, Gopinath said.

“To summarize, the global outlook remains precarious with a synchronized slowdown and uncertain recovery. At three percent growth, there is no room for policy mistakes and an urgent need for policymakers to support growth”, she said, stressing that multilateralism remains the only solution to tackling major issues.