The International Monetary Fund lowered its global growth forecast on Monday, pointing to ongoing trade wars dampening China’s economic outlook as well as rising interest rates in the United States.
“Higher trade uncertainty will further dampen investment and disrupt global supply chains,” said IMF chief economist Gita Gopinath.
The IMF trimmed its growth expectations to 3.5 percent from 3.7 percent. Global growth outlook for 2020 was also cut to 3.6 percent from 3.7 percent.
In the meantime, major markets around the world headed lower. The CSI 300 index in China fell 1.3 per cent while Hong Kong’s Hang Seng index fell 0.7 per cent
In Europe, the Stoxx 600 index fell 0.6 per cent. London’s FTSE 100 fell 1.1 per cent, while Frankfurt’s Xetra Dax 30 declined 0.8 percent.
“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” said IMF Managing Director Christine Lagarde who presented the latest forecasts during the World Economic Forum in Davos, Switzerland.
Waiting for U.S.-China Trade Deal
The Dow Jones Industrial Average fell as many as 200 points on Tuesday as fears of a global growth slowdown continue to permeate the broad market.
China’s economy grew at a rate of 6.6 percent last year based on numbers coming out of China’s government. The figure was in line with analyst expectations, but represented its slowest pace of growth in almost 30 years.
“Vice-Premier Liu He will arrive in the US with an array of gifts, including measures such as a reduction in excess car duties and increased purchases of farm products and energy as well as assurances that Beijing intends to make more moves on market opening, intellectual property and technology transfer,” Jonathan Fenby, chairman of the China team at TS Lombard wrote. “But the structural issues remain and present fundamental difficulties.”
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As ongoing trade negotiations with the U.S. and China continue, this is the primary trigger event the markets are waiting for.
“In the end, it will all depend on how Trump decides between a short-term outcome and longer-term aims, which will involve broader domestic political calculations,” Fenby added.
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