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16.08.2019 21:51 World Economy Review - July 2019

A sharp deceleration of global trade driven by ongoing trade tensions is slowing the global economy more than earlier projections, according to the latest forecasts of the International Monetary Fund.

Real global economic growth will slow to 3.2% this year, 0.1 percentage point slower than forecast in April, and down from 3.6% last year and 3.8% in 2017, according to the quarterly update to the IMF`s flagship World Economic Outlook.

The slowdown in growth and downgrade in the forecast reflect the ongoing fallout from trade tensions. Since the IMF`s last round of forecasts in April, three more months of data have confirmed weaker growth in much of the world, while tariffs escalated between the U.S. and China during a two-month breakdown in negotiations.

Global trade has decelerated rapidly during the ongoing trade tensions. The IMF now projects world trade will grow 2.5% in 2019, a downgrade of nearly a full percentage point in the forecast since April. Earlier forecasts had anticipated a slowdown, but not this sharp. As recently as 2017, global trade in goods and services was growing at a robust 5.5%.

“Global growth is sluggish and precarious, but it does not have to be this way because some of this is self-inflicted,” said Gita Gopinath, the IMF`s chief economist.

“Dynamism in the global economy is being weighed down by prolonged policy uncertainty as trade tensions remain heightened despite the recent U.S.-China trade truce,” she said, referring to an agreement in late June between President Trump and China`s President Xi Jinping to return to negotiations after two months of escalating tariffs.

She also cited risks to the economy from tensions over technology companies, and the prospect of a disorderly Brexit if the U.K. leaves the European Union without agreeing to a deal with the bloc.

The downgrades in growth were largely concentrated in emerging markets, with growth in India down 0.3 percentage points from earlier forecasts, Russia down 0.4 points, Mexico down 0.7 points and Brazil down 1.3 points.

Advanced economies fared relatively better in this round of forecasts. The U.S. and euro area are expected to grow more slowly than in 2018, but the U.S. slowdown is now forecast to be less pronounced than in the April round of forecasts while Europe`s outlook was unchanged.

The IMF`s outlook, which now reflects data through mid-July, adds to evidence that trade tensions are continuing to ripple around the world.

A separate report from the World Trade Organization, released on Monday, showed the extent to which trade protectionism has continued to increase. The WTO said in its mid-year monitoring report that, since October, trade restrictions were applied to approximately $340 billion a year of trade.

Those new trade restrictions were the second-highest figure on record, surpassed only by the $588 billion in restrictions reported in its previous monitoring report. “Together, these two periods represent a dramatic spike in the trade coverage of import-restrictive measures,” said the WTO, which counts tariffs, import bans, special safeguards, import taxes and export duties among the restrictions that it tracks.

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25.06.2019 19:22 World Economy Review - May 2019

The World Bank downgraded its forecast for the global economy in light of trade conflicts, financial strains and unexpectedly sharp slowdowns in wealthier countries.

The bank, an anti-poverty agency, expects the world economy to grow 2.6% this year. That would be the slowest calendar-year growth since 2016, and it is down from the 2.9% expansion the agency forecast in January.

The World Bank downgraded every major region of the world, though it kept its 2019 forecast for U.S. growth at 2.5%. In the 19 countries that use the euro currency, growth is forecast to slow to 1.2%, down from 1.8% last year and the 1.6% the World Bank expected in January.

Slowed by the Trump administration`s trade war with China, global trade is expected to expand just 2.6% this year, the weakest pace since the 2008 financial crisis.

The Trump administration and Beijing have imposed tariffs on hundreds of billions of dollars of each other`s imports in a clash over China`s drive to overtake American technological dominance. Their showdown has generated uncertainty for businesses that must decide whether and where to make investments, buy supplies and establish factories.

“We are not pushing the panic button yet,” said Ayhan Kose, a World Bank economist. “But we are sending a message” of a possibly deeper slowdown if trade hostilities persist.

“This is high time for policymakers to find ways to resolve their differences,” Kose said.

China, the world`s second-largest economy after the U.S., is forecast to grow 6.2%, which would be its weakest performance since 1990, when it was enduring the aftermath of a violent crackdown on pro-democracy protesters at Tiananmen Square.

The Japanese economy is predicted to eke out 0.8% growth, same as last year.

The Russian economy will grow by 1.2 percent in 2019, the World Bank said in at least the third downgrade. The Washington-based institution previously downgraded its forecast of Russia`s growth from 1.8 percent to 1.5 percent in early 2019, then again to 1.4 percent in April.

Its latest revision - made in the twice-yearly Global Economic Prospects report - is still more optimistic than Russia`s own projection of 0.8 percent.

Real GDP growth exceeded expectations in 2018, reaching 2.3 percent despite international sanctions. The bank had said the rise was largely due to "one-off effects in [non-residential] construction" and the football World Cup that Russia hosted last summer.

The World Bank still projects the Russian economy to grow by 1.8 percent next year and in 2021.

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26.05.2019 17:45 World Economy Review - April 2019

Yes, yes, we normally think of a recession as being negative growth. More formally, two quarters or more of negative economic growth. The pile of everything being produced by everyone goes down.

However, while this is true it`s not entirely useful when we consider the global economy. There a reasonable rule of thumb is that less than 3% growth is that recession:

It sounds a bit odd to be describing near 3% global GDP growth as being recession levels – most rich countries would kill for that sort of growth rate maintained over the years. Do note that we`re talking of real growth here, this is after inflation is deducted. Still, a useful rule of thumb is that for global growth something less than 3% is what we should be describing as a recession.

This isn`t an official declaration, rather a general rule of thumb used by the World Bank, OECD and IMF. Global growth of less than 3% is recessionary. The reason being that growth in poor countries should be – note should – a lot easier than that in rich. Rich places are already at the technological frontier. To get more growth people have to go work out how to do it.

Poor countries by contrast aren`t, by definition, at that technological frontier. They`re not doing everything in the modern and efficient manner – that`s why they`re poor. So, their growth is a lot easier. Go copy – quite literally – what the rich countries are doing and there you have it, growth. Poor countries should be growing faster than rich and that`s what means that global growth should be up above 3% whatever else is happening. If it isn`t then we can say that we`re in something akin to a recession – even though the actual definition, falling economic output, isn`t being met.

Not hugely important of course, just one of those little things that makes up the world`s rich tapestry.

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20.04.2019 18:11 World Economy Review - March 2019

The International Monetary Fund cut its outlook for global growth to the lowest since the financial crisis amid a bleaker outlook in most major advanced economies and signs that higher tariffs are weighing on trade.

The world economy will grow 3.3 percent this year, down from the 3.5 percent the IMF had forecast for 2019 in January, the fund said in its latest World Economic Outlook. The 2019 growth rate would be the weakest since 2009, when the world economy shrank. It`s the third time the IMF has downgraded its outlook in six months.

“This is a delicate moment” for the global economy, Gita Gopinath, who recently became the IMF`s chief economist, said at a press briefing in Washington. A projected pickup in growth next year is precarious, she said.

The global volume of trade in goods and services will increase 3.4 percent this year, weaker than the 3.8 percent gain in 2018 but reduced from the IMF`s January estimate of 4 percent, the fund`s report showed.

Global economic growth will recover in the second half of this year, before plateauing at 3.6 percent from next year, according to the Washington-based fund. A series of encouraging developments have boosted optimism about the world economy in recent weeks, including the decision of the Federal Reserve to put interest-rate hikes on hold and encouraging data from China`s manufacturing sector and the U.S. job market.

Still, the IMF is warning that risks are skewed to the downside, with a range of threats menacing the global economy, including the possible collapse of negotiations between the U.S. and China to end their trade war, and the departure of Britain from the European Union without a transition agreement, known as the “no-deal” Brexit scenario.

“Amid waning global growth momentum and limited policy space to combat downturns, avoiding policy missteps that could harm economic activity needs to be the main priority,” the IMF said.

IMF Managing Director Christine Lagarde is warning that the world economy faces a “delicate moment”. While intense trade talks between the U.S. and China have raised expectations of a lasting truce between the world`s two-largest economies, analysts remain worried about the strength of the global economy, a decade after the financial crisis. Lagarde said the fund doesn`t anticipate a recession in the near-term.

The fund cut its forecast for U.S. growth to 2.3 percent this year, down 0.2 percentage point since the IMF`s last global outlook in January. The downgrade reflects the impact of the partial government shutdown that ended in January, as well as lower-than-expected public spending. The fund upgraded its U.S. forecast next year to 1.9 percent, up 0.1 percentage point, on the Fed`s shift to a more patient stance on interest rates.

The IMF slashed its outlook for the euro area to 1.3 percent this year, down 0.3 point from three months ago. Growth is expected to be softer in several major European economies, including Germany, where weak global demand and tougher car-emission standards have hit factory production. Weak domestic demand and high sovereign-debt spreads have dimmed Italy`s outlook, while street protests in France weighed on growth, the fund said.

The IMF cut its outlook for U.K. growth to 1.2 percent this year, down 0.3 point from three months ago. The IMF raised its forecast for Chinese growth by 0.1 point to 6.3 percent this year, while lowering its projection for growth in Japan by 0.1 point to 1 percent. The fund cut its outlook for India`s growth this year to 7.3 percent, down from 7.5 percent in January.

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23.03.2019 02:10 World Economy Review - February 2019

Annual global economic growth is forecast to decelerate to 3.5 per cent in 2019 and 2020, down from 3.7 per cent in 2018, said London-based Euromonitor International, a global market research company in a new report.

This deterioration in its global outlook has primarily been a result of downgrades to the advanced economies, including the US and the Eurozone, but also to some emerging economies such as Mexico and Russia, according to the report titled “Global Economic Forecasts Q1 2019”.

The real GDP in advanced economies is estimated to grow by 2.0 per cent in 2019 and 1.7 per cent in 2020, a decline from 2.3 per cent growth in 2018. Emerging economies are anticipated to see a steadier real GDP growth of 4.6 per cent in 2019 and 4.7 per cent in 2020, which is similar to a pace of 4.6 per cent in 2018.

The world trade growth is likely to weaken in 2019 as a result of a pullback in globalisation and increasing political risks, the report said.

The recent decline in financial asset prices also suggests a risk of recession in 2019. Major global risks are stemming from remaining trade war uncertainty, tightening financial conditions and risks of a worse-than-expected Chinese economic slowdown.

The Eurozone outlook is also clouded by a possibility of a no-deal Brexit and Italian fiscal policy. Lower oil prices and the emergence of populist leaders in Latin America could further weigh on the outlook of emerging economies.

Worsening trade and political uncertainty along with a more transitory impact of tax cuts has led Euromonitor International to reduce the US real GDP growth forecast to 2.4 per cent in 2019 and 1.7 per cent in 2020, it said in the report.

Negative readings at the end of 2018 have led to downgrades in the Eurozone outlook, with the economy slowing close to long-term trend growth. Real GDP is to grow by 1.7 per cent in 2019 and 1.6 per cent in 2020.

The UK outlook remains under severe Brexit uncertainty. “We have kept our baseline real GDP growth at 1.5 per cent in 2019 and 1.4 per cent in 2020. However, the baseline is just one of several possible scenarios,” Euromonitor International said.

Slowing global demand and the China-US trade war continue to take a toll on Japan’s economy, GDP growth declined in Q3. Euromonitor International has reduced real GDP growth to 0.6 per cent in 2019 and 0.6 per cent again in 2020.

China is facing growing concerns about a domestic demand slowdown and the impact from the US-China trade war. “We have for now kept GDP growth forecasts at 6.1 per cent in 2019 and 5.9 per cent in 2020,” the report said.

Brazil’s business confidence has jumped on the new president’s reform agenda. While waiting for the government’s actions, Euromonitor’s real GDP growth forecast is unchanged at 2.2 per cent in 2019, 2.4 per cent in 2020.

Russia’s economic growth will be weighed down by slowing exports, weak domestic demand and decreasing oil prices. Euromonitor International has cut the real GDP growth forecast to 1.3–1.4 per cent in 2019-2020.

India’s economy decelerated slightly in Q3 2018, dragged down by private consumption and net exports. Euromonitor International has reduced real GDP growth forecasts to 7.4 per cent in 2019 and 7.5 per cent in 2020.

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