IMF cuts 2019 global growth forecast: Update

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The IMF projects slower growth in advanced economies will create a drag on the global economy, which could affect demand forecasts for oil and other commodities.

The April update to the organization's World Economic Outlook, released today, projects a growth rate for the global economy of 3.3pc/yr for 2019, a drop of 0.2 percentage points from its previous forecast in January. That compares with a 3.6pc growth rate in 2018. IMF forecasts are widely used in the modeling behind key oil demand projections, including those of the IEA.

With today's outlook, the IMF has now cut near-term growth projections for the third consecutive time. The report projects slower growth this year for 70pc of the global economy, IMF director of research Gita Gopinath said.

But Gopinath also highlighted the projected pickup in growth later this year and in 2020, when the IMF expects the world economy to grow by 3.6pc. "Our baseline forecast is for the global forecast to recover, but there are downside risks," Gopinath said at a briefing today.

The US growth rate is expected to decline to 2.3pc this year and 1.9pc in 2020, from 2.9pc in 2018. The IMF cut its 2019 projection for the US by 0.2 percentage points, in part because of the prolonged shutdown of most US government agencies at the start of the year. The downward trajectory of US growth reflects the waning effects of tax cuts enacted in late 2017.

The IMF also cut back growth projections for nearly every advanced economy for 2019. By contrast, it slightly upgraded its China forecast to 6.3pc this year. The upgrade reflects a reassessment of the trajectory of US-China trade war.

The previous IMF outlook built its growth assumptions on an expected escalation of US tariffs on China in March. But the US has indefinitely delayed that escalation as the two countries continue to negotiate a sweeping trade agreement. Internal IMF analysis also shows the potential effects of a further escalation. It projects that a 25pc tariff applied to the entirety of bilateral trade would cut GDP growth rate by 0.6 percentage points in the US and 1.5 percentage points in China.

More broadly, the IMF also lowered its projection for growth in global trade volumes for both 2019 and 2020, to 3.4pc and 3.9pc respectively.

Trade tensions between the US and major trading partners like China are a key risk to the forecast and could affect the growth of oil-exporting countries. "The impact of trade wars on global growth spills over to oil prices. If there is going to be a weakening of global growth because of trade tensions, that can a large negative effect" on oil exporters, Gopinath said.

The outlook for the Middle East and North Africa also was revised downward for 2019. The IMF held Saudi Arabia's growth forecast unchanged at 1.8pc this year and 2.1pc in 2020. Iran's economy is expected to shrink by 6pc this year as a result of US sanctions.

The growth projection for the Latin American region, at 1.4pc this year, is 0.6 percentage points lower than it was in the previous outlook. Venezuela's economy is projected to shrink by 25pc this year — leaving the country's economy barely 15pc of its size in 2013.

But even that outlook may not be taking full account of the breakdown of the country's power grid that has crippled oil production and exports since March."It is very hard to make predictions at this point," given the severity of the humanitarian and economic crisis affecting Venezuela and its falling oil output, IMF world economic studies division chief Oya Celasun said.