We’ve seen this movie before. The top economists at the International Monetary Fund — the global agency created after World War II to promote stability and growth in the world economy — unveil their latest forecast, which is almost always weaker than its previous forecast. The economists hold out the possibility that world growth will improve if the most important countries, including China and the United States, adopt sensible policies and cooperate with one another.
Dream on. By now, no one should be surprised by the stubborn persistence of weak growth. The IMF’s conclusions are contained in its latest World Economic Outlook report. It makes for unhappy reading. Here’s how IMF chief economist Gita Gopinath summed up the present situation:
“The global economy is in a synchronized slowdown, with growth for 2019 downgraded again — to 3 percent — its slowest pace since the global financial crisis. This is a serious climbdown from 3.8 percent in 2017, when the world was in a synchronized upswing.” Inevitably perhaps, the IMF predicts that global growth will rebound next year to 3.4 percent, though this is slightly lower than an earlier forecast for 2020 of 3.6 percent.
The causes of weak growth are no secret, the WEO makes clear. The most obvious is the protracted U.S.-China trade wars, with each country imposing stiff tariffs on the other. The growth of trade volumes in the first half of 2019 was a meager 1 percent, Gopinath notes, “the weakest level since 2012.”
In turn, these conflicts and confusions have encouraged multinational companies to delay or cancel investment projects — factories, warehouses, computer systems and the like. There’s a vicious cycle at work. The trade wars deter investment, which further reduces trade because so-called “capital goods” (equipment and machinery) are heavily bought and sold internationally.
According to the IMF, the global economy may be weaker than the standard indicators suggest. “It is important to keep in mind that the subdued world growth of 3 percent is occurring at a time when monetary policy” — the effort of government central banks like the Federal Reserve to influence interest rates and credit conditions — “has significantly eased almost simultaneously across advanced and emerging markets.”
Without this extra stimulus, global growth in 2019 would have been 0.5 percentage points lower than it is. Although this may not seem like much, it is. Global GDP is crudely estimated by varying methodologies between $85 trillion and $135 trillion. By simple arithmetic, a half of 1 percentage point would represent lost output between $425 billion and $675 billion.
In the global slowdown, manufacturing has been hardest hit, because it’s most closely tied to global trade. Spending on services — everything from eating out to health care — has held up well and has kept unemployment low. Should this change, the lackluster global economy would take a turn for the worst.