This week, the International Monetary Fund has warned that the global economy is slowing down. More important, though, if the world’s economies—especially the two biggest: the United States and China—continue to keep bicker as they have been, it is only going to get worse.
Indeed, the agency updated its World Economic Outlook by lowering estimates for growth this year by 0.2 percent. This second downward revision now puts growth estimates at 3.5 percent, mostly affected by weakness in Turkey and Germany.
Bankers and other global leaders released the new report as they gathered at the annual economic conference in Davos, Switzerland. The report emphasizes the biggest growth risks we have yet identified rest within the unresolved trade war between the US and China, as well as the possibility that Britain will, in fact, leave the European Union without making any kind of a deal.
According to IMF Managing Director Christine Lagarde said, at a Davos press conference, “After two years of solid expansion, the world economy is growing more slowly than expected, and risks are rising.”
That said, it does not mean that this global recession is extremely close at hand. Lagarde advises simply that the “risk of a sharper decline in global growth has certainly increased.”
Of course, the slowdown in China is one of the biggest concerns right now. As the second-largest economy in the world struggles, it puts more pressure on the tighter financial regulations. Furthermore, the new US tariffs could be just the beginning of a domino effect resulting in yet more extreme contraction which will lead to abrupt and broad sell-offs in both financial and commodity markets.
Actually, the IMF had already reduced global outlook as tariffs between US and China increased. The IMF had assured that its latest revision was, at least partially, carried over from the year prior noting especially that weakness among German automakers (because of growing fuel emission standards) and softener domestic demand in Italy. However, the IMF also made sure to highlight weaker sentiment throughout the global financial markets with a contraction in Turkey that is probably much deeper than they had originally anticipated.