No-deal Brexit could derail global growth - IMF
A no-deal Brexit and a severe economic slowdown in China have been flagged up by the International Monetary Fund as two of the biggest threats to global growth this year.
Updating its World Economic Outlook, the IMF marginally adjusted its expectations for global growth in 2019 and 2020 – by 0.2 and 0.1 percentage points respectively, to 3.5% and 3.6%, against 2018’s 3.7% – which it said reflected “softer momentum in the second half of 2018”.
The bank also flagged up the main risks to global growth in 2019. It said an escalation in trade tensions between the US and China remained “a key source of risk to the outlook”. Washington and Beijing have imposed billions of dollars of tariffs on imports and talks to end the impasse have so far failed to make notable headway.
But the IMF also warned that other factor could also derail the global economy.
“A range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment with adverse growth implications, especially given the high levels of public and private debt,” it said.
“These potential triggers include a no-deal withdrawal of the United Kingdom from the European Union and a greater-than-envisaged slowdown in China.”
The IMF is currently predicting baseline growth of around 1.5% for the UK in 2019-20. But it said there was “substantial uncertainty” around the projection.
“This baseline projection assumes that a Brexit deal is reached in 2019 and the UK transitions gradually to the new regime. However, as of mid-January, the shape that Brexit will ultimately take remains highly uncertain.”
China’s once-booming economy slowed in 2018, and analysts expect that to continue in the current year.
The IMF noted that Beijing had responded with a series of fiscal measures in 2018 intended to support the economy. “Nevertheless, activity may fall short of expectations, especially if trade tensions fail to cease. As seen in 2015/16, concerns about the health of China’s economy can trigger abrupt, wide-reaching sell-offs in financial and commodity markets that place its trading partners, commodity exports and other emerging markets under pressure.”