## Global Growth Plateaus as Economic Risks Materialize

_IMF Blog, October 9, 2018_

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## Bibliographic details
- Authors: Maurice Obstfeld
- Published: October 9, 2018

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### Overview and headline projections
- The latest World Economic Outlook projects that global growth will remain steady over 2018–19 at last year’s rate of 3.7 percent.
- Last April’s projection was 3.9 percent for both this year and next; subsequent developments make 3.9 percent over-optimistic.
- Growth has plateaued at 3.7 percent rather than rising.

### Regional and aggregate revisions
- Projected 2018–19 growth in advanced economies is 0.1 percentage point lower compared with six months ago.
- Projected revisions for emerging market and developing economies are:
  - -0.2 percentage point for this year and next year for emerging market economies.
  - -0.4 percentage point for this year and next year for developing economies.
- Emerging market and developing economies comprise about 40 percent of world GDP at market exchange rates.

### Country-specific developments and drivers
- United States:
  - Growth buoyed by a procyclical fiscal package, driving US interest rates higher.
  - US growth is expected to decline once parts of fiscal stimulus go into reverse.
  - 2019 US growth forecast downgraded owing to recently enacted tariffs on a wide range of imports from China and China’s retaliation.
- China:
  - Expected 2019 growth is marked down.
  - Domestic Chinese policies are likely to prevent an even larger growth decline than projected, at the cost of prolonging internal financial imbalances.
- Geographic diversity of negative revisions includes Argentina, Brazil, Mexico (Latin America); Turkey (emerging Europe); India (south Asia); Indonesia and Malaysia (east Asia); Iran (Middle East); and South Africa (Africa).
- Petroleum exporters that will benefit from higher oil prices include Nigeria, Kazakhstan, Russia, and Saudi Arabia.

### Rising risks and financial conditions
- Advanced economies: core inflation largely quiescent and financial conditions remain easy.
- Emerging and developing economies: financial conditions have tightened markedly over the past six months.
- Contributing factors for emerging markets:
  - Gradually tightening US monetary policy.
  - Trade uncertainties.
  - Country-specific factors for Argentina, Brazil, South Africa, and Turkey.
- Observed market effects in affected emerging economies:
  - Discouraged capital inflows.
  - Weakened currencies.
  - Depressed equity markets.
  - Pressured interest rates and spreads.
- High levels of corporate and sovereign debt built up over years of easy global financial conditions constitute a potential fault line.
- The susceptibility to large global shocks has risen; a sharp reversal for emerging markets would pose a significant threat to advanced economies.
- News-based indicators of policy uncertainty have spiked recently, even if advanced-country asset markets remain less concerned.
- Trade policy disruptions are a near-term downside risk, including uncertainty around the United States-Mexico-Canada Agreement, Brexit negotiations, US tariffs on China, and tariffs more broadly on auto and auto part imports that may disrupt supply chains.

### Policy implications and recommendations
- Policymakers have an excellent opportunity to build resilience and implement growth-enhancing reforms.
- Governments need to:
  - Build their fiscal buffers.
  - Enhance resilience by upgrading financial regulatory regimes.
  - Enact structural reforms that raise business and labor-market dynamism.
- Multilateral global policy cooperation mechanisms are under strain, notably in trade, and need strengthening.
- Governments have less fiscal and monetary ammunition than when the global financial crisis broke out ten years ago, increasing the urgency to act now.
- Despite potentially reduced “political space” in some countries, immediate action is advised to create consensus on sound policies.

### Longer-term forces and structural challenges
- Advanced economies face secular challenges including:
  - Slow growth of workers’ incomes.
  - Perceptions of lower social mobility.
  - Inadequate policy responses to structural economic change in some countries.
- Emerging market and developing economies face diverse long-term challenges:
  - Improving investment environments.
  - Reducing labor-market duality.
  - Upgrading educational systems.
- The dangers of climate change are rapidly intensifying.
- All countries must prepare workforces for changes in the nature of work due to new technologies.
- Ensuring that growth is inclusive is critical; without more inclusive growth, centrist and multilateral approaches to politics and policy become increasingly vulnerable.

*Maurice Obstfeld, October 9, 2018*

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## References

- [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2018/09/24/world-economic-outlook-october-2018)
- [Global Financial Stability Report](https://blogs.imf.org/2018/10/09/the-financial-system-is-stronger-but-new-vulnerabilities-have-emerged-in-the-decade-since-the-crisis/)
- [Fiscal Monitor](https://blogs.imf.org/2018/10/09/the-wealth-of-nations-governments-can-better-manage-what-they-own-and-owe/)
- [https://www.imf.org/wp-content/uploads/2018/10/WEO-October-Chart.jpg](https://www.imf.org/wp-content/uploads/2018/10/WEO-October-Chart.jpg)
- [trade policies](https://www.imf.org/external/mmedia/view.aspx?vid=5846588233001)
- [https://www.imf.org/wp-content/uploads/2018/10/weo-table-102018.jpg](https://www.imf.org/wp-content/uploads/2018/10/weo-table-102018.jpg)

_Source: https://www.imf.org/en/blogs/articles/2018/10/09/blog-weo-global-growth-plateaus-as-economic-risks-materialize_