‘There Are Clouds On The Horizon’: Why The IMF Just Slashed Their Global Growth Outlook

“Last April, at the time of our last World Economic Outlook, the world economy’s broad?based momentum led us to project a 3.9 percent growth rate for both this year and next [but] considering developments since then, that number now appears overoptimistic”, Maury Obstfeld, the IMF’s Economic Counsellor and Director of Research said at a press conference convened in Bali on Tuesday, ahead of the fund’s annual meeting.

“Rather than rising, growth has plateaued at 3.7 percent”, Obstfeld continued, before warning that “there are clouds on the horizon.”

It comes as no surprise that the IMF cut their outlook for global growth. The fund has for months warned that a variety of headwinds (not the least of which are trade frictions) could serve to undermine the global economy in the year-end. Last week, Christine Lagarde essentially confirmed that the outlook for this year and next would be slashed.

At Tuesday’s presser in Indonesia, Obstfeld went on to suggest that more than a few economists have suggested – namely that the effects of late-cycle stimulus in the U.S. are likely to prove ephemeral.

“In several key economies, growth is being supported by policies that seem unsustainable over the longer term”, he warned, before getting more specific as follows:

Growth in the United States, buoyed by a pro?cyclical fiscal package, continues at a robust pace and is driving U.S. interest rates higher, but U.S. growth will decline once parts of its fiscal stimulus go into reverse.

Apparently, world-renowned economist Larry Kudlow was not consulted.

Obstfeld went on to link the IMF’s decision to downgrade the 2019 outlook to the U.S.-China trade war. “Notwithstanding the present demand momentum in the U.S., we have downgraded its 2019 growth forecast, owing to the recently enacted tariffs on a wide range of imports from China and China’s retaliation”, he said, adding that while “domestic Chinese policies are likely to prevent an even larger growth decline than the one we project,” that will ultimately “come at the cost of prolonging internal financial imbalances.”