Since its last more bullish forecast in May, trade tensions between the U.S. and China have increased and the tightening of global financial conditions has been thrown into sharp relief — not to mention political upheavals in Europe, slow progress on structural reforms and ongoing Brexit negotiations.
“In the short term, escalating trade tensions and a sharp tightening in global financial conditions could undermine investment and weigh on growth,” the IMF reported in its latest research.
In the medium term, meanwhile, risks stem from delayed fiscal adjustment and structural reforms, demographic challenges, rising inequality, and declining trust in mainstream policies.
Also, a “no-deal” Brexit would lead to high trade and non-trade barriers between the U.K. and the rest of the European Union with negative consequences for growth, the IMF stated. A “no-deal” Brexit is classed as where the country crashes out of the EU without a trade deal, and reverts to WTO rules.
The report comes after the European Commission on Thursday also reported that growth could stall in the 19-country euro zone due to “many interconnected downside risks.” It forecast growth of 1.9 percent in 2019 (like the IMF) and 1.7 percent in 2020.
Europe is expected to see growth moderate along with most major economies. The Fund released its World Economic Outlook report in October in which it cut its global growth forecasts too, forecasting 3.7 percent in 2018 and 2019 — down 0.2 percentage points from an earlier forecast.