## A Weakening Global Expansion Amid Growing Risks

_IMF Blog, January 21, 2019_

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**Canonical URL:** [A Weakening Global Expansion Amid Growing Risks](https://www.imf.org/en/blogs/articles/2019/01/21/blog-a-weakening-global-expansion-amid-growing-risks)

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## Bibliographic details
- Authors: Gita Gopinath
- Published: January 21, 2019

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### Global outlook and key projections
- Global growth projected at 3.5 percent in 2019 and 3.6 percent in 2020, 0.2 and 0.1 percentage point below last October’s projections.
- Global expansion is weakening somewhat faster than expected; risks of larger downward corrections are rising.
- Financial markets in advanced economies have become intertwined with trade tensions, tightening financial conditions and escalating risks to global growth.

### Advanced economies: outlook and inflation
- Forecast for advanced economies: growth slows from 2.3 percent in 2018 to 2 percent in 2019 and 1.7 percent in 2020.
- Euro area revisions are the main reason for downward adjustments among advanced economies:
  - Germany: production difficulties in the auto sector and lower external demand weigh on 2019 growth.
  - Italy: sovereign and financial risks—and the connections between them—are adding headwinds to growth.
- United States: expansion continues but expected to decelerate with the unwinding of fiscal stimulus.
- Inflation dynamics:
  - Core inflation is close to target in the United States where growth is above trend.
  - Core inflation remains significantly below target in the euro area and Japan.

### Emerging and developing economies
- Economic activity projected to tick down to 4.5 percent in 2019, with a rebound to 4.9 percent in 2020.
- Projection for 2019 lowered by 0.2 percentage point from October, mainly due to:
  - A large projected contraction in Turkey amid policy tightening and adjustment to more restrictive external financing conditions.
  - A significant downgrade to growth in Mexico in 2019–20, reflecting lower private investment.
- Projected rebound in 2020 driven by expected recovery in Argentina and Turkey.
- Headwinds include weaker capital flows following higher US policy rates and exchange rate depreciations; some pickup in inflation in emerging economies reversed toward the end of 2018.

### Indicators of weakening momentum
- Trade and investment have slowed.
- Industrial production outside the United States has decelerated.
- Purchasing managers’ indices have weakened, flagging softening momentum.
- These cyclical forces that propelled broad-based growth since the second half of 2017 may be weakening faster than expected in October.

### Main downside risks
- Escalation of trade tensions and worsening financial conditions:
  - Higher trade uncertainty will further dampen investment and disrupt global supply chains.
  - A more serious tightening of financial conditions is particularly costly given high levels of private and public sector debt.
- China: a faster-than-expected growth slowdown—especially if trade tensions continue—could trigger abrupt sell-offs in financial and commodity markets as in 2015–16.
- Europe: ongoing Brexit uncertainty and costly spillovers between sovereign and financial risk in Italy remain threats.
- United States: a protracted US federal government shutdown poses downside risks.

### Policy priorities and recommendations
- Resolve trade disagreements cooperatively and quickly to reduce policy uncertainty rather than raising harmful barriers; implement the call of Group of Twenty leaders to reform the World Trade Organization in Buenos Aires.
- Where fiscal space is low, adjust fiscal policy in a growth-friendly manner to ensure public debt is on a sustainable path while protecting the most vulnerable.
- Monetary policy in advanced economies should continue to normalize carefully; major central banks should calibrate next steps in line with slowing momentum.
- Use macroprudential tools where financial vulnerabilities are building up.
- Across all economies, implement measures to boost potential output growth and enhance inclusiveness.
- Strengthen multilateral cooperation and ensure multilateral institutions like the IMF have adequate resources, given more limited policy space than in 2008.

*Gita Gopinath, January 21, 2019*

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## References

- [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019)
- [October’s projections](https://blogs.imf.org/2018/10/08/global-growth-plateaus-as-economic-risks-materialize/)
- [https://www.imf.org/wp-content/uploads/2019/01/WEO-table-update-012019.png](https://www.imf.org/wp-content/uploads/2019/01/WEO-table-update-012019.png)

_Source: https://www.imf.org/en/blogs/articles/2019/01/21/blog-a-weakening-global-expansion-amid-growing-risks_