World—Growth slowdown continues amid trade tensions

For the third time in six months, the IMF has again cut its growth forecasts for 2019. In its twice-yearly World Economic Outlook, released on 9 April, the IMF is now projecting the world economy will grow 3.3%, down from 3.5% expected in January and 3.7% expected in October 2018. On-going trade tensions, which have already caused a loss of momentum at the back end of 2018 and beginning of 2019, remain a major concern to the IMF.

Recent news suggests that an agreement between the US and China is near as both countries have agreed to set up “enforcement offices” to monitor implementation of the deal. But the US remains reluctant to accept China’s demands that existing tariffs must be lifted. Still, global trade tensions are likely to remain elevated as the US is now considering imposing new tariffs on US$11 billion of EU products and the EU proposing US$20 billion in retaliation.

In the US, bond markets have priced in growing risks to the economy (Chart). But the inversion of the yield curve—where investors require higher interest rates to hold shorter-term bonds, often a bellwether for recessions—has been short-lived. This suggests that risks have risen but a recession is not the central forecast. The IMF expects the US economy to grow 1.8% this year and 1.7% in 2020.