Wednesday 24 July 2019

Germany worst hit as IMF slashes growth forecast

Threat: The IMF, led by Christine Lagarde, has warned of rising risks to global growth. Photo: AFP/Getty Images
Threat: The IMF, led by Christine Lagarde, has warned of rising risks to global growth. Photo: AFP/Getty Images
Gavin McLoughlin

Gavin McLoughlin

The IMF has cut its global growth forecast for this year to 3.5pc - the second downgrade in four months - amid signs of a slowdown in Europe and Asia in particular.

Among major economies, the deepest revision was for Germany, which the IMF now sees expanding 1.3pc this year.

Soft consumer demand and weak factory production after the introduction of stricter emission standards for cars was behind the shift.

Risks "tilt to the downside", the IMF said in its report - which came hours after China revealed the slowest expansion since 2009 last quarter.

It will set the tone for this week's World Economic Forum meeting in Davos, Switzerland.

The IMF said weakening financial market sentiment and softer economic momentum in Germany and Italy, had fuelled the downgrade.

It also said Brexit and a greater-than-envisaged slowdown in China could hit growth.

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The global rescue fund had already cut forecasts in October, citing the continuing trade dispute between the US and China. European shares fell from six-week highs.

"Risks to global growth tilt to the downside. An escalation of tensions beyond those already in the forecast remains a key source of risk to the outlook," the IMF, led by managing director Christine Lagarde said.

"It is important to take stock of the many rising risks," said Gita Gopinath, the fund's new chief economist.

Among the threats cited in the report were more trade tariffs, a renewed tightening of financial conditions, a no-deal Brexit and a deeper-than-anticipated slowdown in China.

The fund also cut its forecasts for Italy, citing weak demand and higher sovereign borrowing costs, and France, where the so-called Yellow-Vest protests have hurt the economy.

The overall euro area will grow 1.6pc this year, 0.3 points below what it previously thought.

"The main shared policy priority is for countries to resolve co-operatively and quickly their trade disagreements and the resulting policy uncertainty, rather than raising harmful barriers further and destabilising an already slowing global economy."

China's expansion in the fourth quarter dipped to 6.4pc, the softest since 2009, but more upbeat than many investors had feared.

Additional reporting by Bloomberg

Irish Independent

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