IMF cuts world growth forecast to 3.5%

Unveiling its forecasts at the World Economic Forum in Davos, Switzerland, the fund left its prediction for U.S. 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 2.0%.

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%, down from its October prediction of 2.1%.

In a report released today, Desjardins splits the difference, forecasting Canada’s GDP at 1.8%.

The IMF’s growth outlook for the 19 countries that use the euro currency has been reduced to 1.6% from 1.8%. Desjardins’ forecast is slightly dimmer at 1.5%.

Growth in emerging-market countries is forecast to slow to 4.5% from 4.6% in 2018, says the IMF. It expects the Chinese economy—the world’s second biggest—to grow 6.2% this year, down from 6.6% in 2018 and the slowest since 1990. For emerging markets and China, Desjardins forecasts growth of 4.6% and 6.3%, respectively.

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

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

In its report, Desjardins says escalating protectionism is “intensifying” uncertainty worldwide. It also says significant tightening of financial conditions could have a negative impact on markets. Further, inflation that is stronger or weaker than forecast would have “major consequences,” especially for the bond market.

Rising interest rates in the U.S. and elsewhere are 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.

Separately, the United Nations is forecasting that the global economy will grow by around 3% in 2019 and 2020, but says waning support for multilateralism, escalating trade disputes, increasing debt and rising climate risks are clouding prospects.

The U.N.’s report on the World Economic Situation and Prospects 2019 also stresses that economic growth is uneven and often doesn’t reach countries that need it most.

U.N. Secretary-General Antonio Guterres says in the forward of the report launched Monday that while economic indicators remain “largely favourable,” the report “raises concerns over the sustainability of global economic growth in the face of rising financial, social and environmental challenges.: