International Monetary Fund (IMF) Managing Director Christine Lagarde Gives a Press Conference on IMF World Economic Outlook - Photo by WEF

JAKARTA (TheInsiderStories)Global economic growth is expected to slow down this year, only growing at around 3.5 percent in 2019 and up to 3.6 percent in 2020, said International Monetary Fund (IMF) Managing Director Christine Lagarde ahead of World Economic Forum (WEF) in Davos, Switzerland, on Monday (01/21).

She stated, this is triggered by high tariffs on global trade, low asset prices, high financial market volatility, and the increasing of debt burden. An escalation of trade tensions beyond those already incorporated in the forecast remains a key source of risk to the outlook, she added.

Lagarde noted, the growth was rated at 0.2 percentage points lower for this year and 0.1 percentage point lower for next year, compared to the October (2018) projection. After two years of solid expansion, the world economy grew slower than expected, and risks increased.

But, she said, these conditions does not mean the world faces a recession. Therefore, the international community must unite to build a brighter future for all. Lagarde did not forecast a full-blown recession looming on the horizon, she painted a picture of rising risks as trade tensions, China’s slowdown and geopolitical uncertainty all took their toll on the global economy’s recent upswing.

Therefore, she argued the policy-makers needed to work together – to ski in the same tracks – to solve common challenges. In addition, the cyclical forces that propelled growth may be weakening faster than we thought, warned Gita Gopinath, Chief Economist at the IMF. That the reason why the fund cut its forecasts for global growth.

She continued, China’ growth slowdown could be faster than expected, and this can trigger abrupt sell-offs in financial and commodity markets. These potential triggers include a “no-deal” withdrawal of the United Kingdom from the European Union and a greater-than-envisaged slowdown in China.

A no-deal Brexit, Gopinah said, would prompt a decline in long-run GDP of 5-8 percentage points, while months of uncertainty would also take a toll on the economy. In addition, the baseline forecast incorporates the United States (US) tariffs announced through September 2018 and retaliatory measures.

For China, the forecast incorporates tariffs ranging from 5 to 10 percent on $60 billion of imports from the US. For US, these include tariffs on solar panels, washing machines, aluminum, and steel announced in the first half of 2018, a 25 percent tariff on US$50 billion worth of imports from China, and a 10 percent tariff on an additional $200 billion of imports from China, and later rising to 25 percent after the current 90-day “truce” ends on March 1, 2019.

Its estimated, average oil prices are just below $60 per barrel in 2019 and 2020 (down from about $69 and $66, respectively). Metals prices are expected to decrease 7.4 percent year on year in 2019 (a deeper decline than anticipated last October), and to remain roughly unchanged in 2020. Price forecasts for most major agricultural commodities have been revised modestly downwards.

Furthermore, a crude oil prices have been volatile since August, reflecting supply influences, including US policy on Iranian oil exports and, more recently, fears of softening global demand.

As of early January, crude oil prices stood at around $55 per barrel, and markets expected prices to remain broadly at that level over the next 4–5 years. Prices of metals and agricultural commodities have softened slightly since August, in part due to subdued demand from China.

However, the IMF disputed the idea that the markets were heading for a recession. Lagarde warned that although the economy continued to move forward, it would face considerable risks, some of which were related to policy.

Written by Daniel Deha, Email: theinsiderstories@gmail.com

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