World economy forecast to slow in 2019 amid trade tensions: IMF

Global economy to slow in 2019. PHOTO: THINKSTOCK

DAVOS, Switzerland — The International Monetary Fund has cut its forecast for world economic growth this year, citing heightened trade tensions and rising US interest rates.

The IMF said it expects global growth this year of 3.5%, down from 3.7% in 2018 and from the 3.7% it had forecast for 2019 back in October.

Unveiling its forecasts at the World Economic Forum in Davos, Switzerland, the fund left its prediction for US growth this year unchanged at 2.5%.

For Canada, the IMF’s estimate for growth in 2019 was 1.9%, down from a forecast in October for growth of 2%.

The IMF’s view is more positive than an assessment by the Bank of Canada issued Jan. 9. The central bank forecast growth of 1.7% this year, down from its October prediction of 2.1%.

IMF’s growth outlook for the 19 countries that use the euro currency has been reduced to 1.6% from 1.8%.

Growth in emerging-market countries is forecast to slow to 4.5% from 4.6% in 2018. The IMF expects the Chinese economy – the world’s second biggest – to grow 6.2% this year, down from 6.6% in 2018 and slowest since 1990.

The World Bank and the Organization for Economic Cooperation and Development have also downgraded their world growth forecasts.

Rising trade tensions pose a major risk to the world economy. Under President Donald Trump the US has imposed import taxes on steel, aluminum and hundreds of Chinese products, drawing retaliation from China and other US trading partners.

“Higher trade uncertainty will further dampen investment and disrupt global supply chains,” said IMF chief economist Gita Gopinath.

Rising interest rates in the US and elsewhere are also pinching emerging-market governments and companies that borrowed heavily when rates were ultra-low in the aftermath of the 2007-2009 Great Recession.

As the debts roll over, those borrowers have to refinance at higher rates. A rising dollar is also making things harder for emerging-market borrowers who took out loans denominated in the U.S. currency.

— With a file from The Canadian Press