IMF cuts global growth forecast as world's economy plateaus

The International Monetary Fund recommends steps policymakers must take to address the slowing growth.

Tuesday, before the International Monetary Fund’s (IMF) annual meetings in Bali, Indonesia, the organisation announced that it will be cutting its growth forecast for the first time in more than two years, due to the impact of escalating trade conflict. 

The 2018 forecast will remain unchanged, but the expectation for next year will be cut. 

The downgrade of projected global expansion for this year and next, from 3.9 percent three months ago to 3.7 percent at the announcement, is the first since July 2016.

IMF chief economist, Maurice Obstfel, said in the press release: 

“The outlook is one of less balanced and more tentative expansion than we hoped for last April.”

In the period of downgrading, risks to the global outlook have risen and threats include the further inflammation of the trade war between the US and other countries, and a sharp rise in interest rates, which will accelerate capital flight from emerging markets. 

The trade war could have a potentially negative effect on global growth. Global output could fall by more than 0.8 percent in 2020 and remain 0.4 percent below its trend line over the long term.

The IMF said that they expect inflation to accelerate around the world this year, largely due to increasing commodity prices and that aging populations and sluggish productivity growth will be a big challenge to advanced economies over the longer term. 

Obstfel recommends the following steps that need to take place globally to boost growth: 

“Policymakers must take a long-term perspective to address this malaise. Inclusive fiscal policies, educational investments, and ensuring access to adequate health care can reduce inequality and are key priorities.”