The IMF downgrades global growth again for 2019, slowest pace since the financial crisis

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest IMF economic forecasts:

  • The IMF revised down its global GDP growth forecasts yet again – to 3.0% for 2019, the slowest since the financial crisis, and to 3.4% for 2020.
  • Growth continued to be weakened by rising trade barriers and increasing geopolitical tensions.
  • The US, however, was expected to perform reasonably well, growing by 2.4% in 2019 and 2.1% in 2020.
  • Eurozone growth was downgraded again. Germany’s GDP is now expected to increase by just 0.5% in 2019 and 1.2% in 2020, whilst Italy is projected to show no growth in 2019, followed by a rise of 0.5% in 2020.
  • The IMF projected growth for the UK of 1.2% for 2019 and 1.4% for 2020, assuming an “orderly Brexit”.
  • Chinese growth is projected to continue slowing – from 6.6% in 2018, to 6.1% in 2019 and to 5.8% in 2020.

Concerning UK data releases:

  • GDP slipped by 0.1% (MOM) in August, after a 0.4% rise in July. Growth in the three months to August was 0.3% (QOQ).
  • Retail sales rose 0.6% (QOQ) in 2019Q3, to be 3.1% higher (YOY).
  • It can be expected that GDP will increase by around 0.3% (QOQ) in 2019Q3. The first data for 2019Q3 will be released on 11 November, some days after the announced date for the Budget (6 November).
  • The trade balance improved in the three months to August.
  • The labour market remains robust if slowing. Employment slipped 56,000 (QOQ) in the three months to August, whilst unemployment rose 22,000 (QOQ). The unemployment rate ticked up to 3.9%, though has not been since December-February 1975. Vacancies remain high, though they have eased since the beginning of 2019.
  • Real earnings growth remains supportive of growth. In the three months to August it was 1.9% (YOY) for total pay and 2.0% (YOY) for regular pay.
  • Inflationary pressures are well contained. CPI inflation remained at 1.7% (YOY) in September, whilst PPI (output) inflation fell to 1.2% (YOY) whilst PPI (input) inflation fell to minus8% (YOY), helped by lower crude oil prices.
  • House prices inflation remains weak, registering just 1.3% (YOY) in August. London prices fell 1.4% (YOY) whilst prices in the South East were down 0.6%.

Concerning political developments:

  • The Queen’s Speech was given on 14 October, outlining the Government’s legislative agenda.
  • The Government and the European Commission agreed a revised “deal” on 17 October. The main change was the removal of the “backstop” in the Withdrawal Agreement.

Ruth Lea said, “…the latest IMF growth projections were exceptionally cautious. Not merely is actual growth continuing to weaken but the IMF emphasised the very considerable downside risks to growth going forward. It is against this global background that the UK’s performance and prospects must be assessed, whatever happens to Brexit. Under the circumstances, the economy remains fairly resilient, despite the ongoing Brexit-related uncertainties.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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