The fallout from Trump's trade war against China will continue to threaten global economies and was a factor in the International Monetary Fund (IMF) lowering its estimate for global growth in 2019. Brexit worries, especially a No Deal Brexit which is likely, is also pummeling business confidence even as inflation remains low.
In a report released Tuesday, the IMF said the global economy is expected to grow by 3.2% percent in 2019. This revised economic growth estimate is 0.1 percentage point lower than the IMF forecast in April. It's also 0.3 percentage points below the IMF's growth estimate at the start of the year.
Growth "remains subdued", according to the IMF. It said there is an urgent need to reduce trade and technology tensions to return to growth in the future.
The IMF predicts growth to improve to 3.5 percent in 2020, although this estimate falls below its earlier forecast of 3.6 percent.
"Risks to the forecast are mainly to the downside," said the IMF of this year's growth estimate.
"They include further trade and technology tensions that dent sentiment and slow investment; a protracted increase in risk aversion that exposes the financial vulnerabilities continuing to accumulate after years of low-interest rates."
The IMF noted that mounting disinflationary pressures are increasing debt service difficulties, constraining monetary policy space to counter downturns, and making adverse shocks more persistent than normal.
It emphasized global trade volume growth fell to around 0.5 percent on a year-on-year basis in the first quarter of 2019.
"Weak trade prospects -- to an extent reflecting trade tensions -- in turn create headwinds for investment," said the IMF. "The silver lining remains the performance of the service sector, where sentiment has been relatively resilient, supporting employment growth (which, in turn, has helped shore up consumer confidence)."
And then there are the uncertainties surrounding Brexit, which is another factor depressing the global growth outlook. Newly installed British prime minister Boris Johnson has promised the UK will exit the European Union on Oct. 31, "deal or no deal."
Analysts have taken this to mean Johnson intends to sever most of the UK's ties with the EU in order to let the UK go it alone and chart its own destiny outside the bloc
"The (IMF) forecast assumes an orderly Brexit followed by a gradual transition to the new regime. However, as of mid-July, the ultimate form of Brexit remained highly uncertain," said the IMF report.
Low inflation is another worry as this has forced major central banks to maintain historically low-interest rates or further ease their monetary policies.
"Lower inflation and entrenched lower inflation expectations increase debt service difficulties for borrowers, weigh on corporate investment spending, and constrain the monetary policy space central banks have to counter downturns, meaning that growth could be persistently lower for any given adverse shock," said the IMF.
