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IMF sees weaker global economic recovery. US growth pegged at 2.1% in 2020

Next year’s recovery in the global economy will be slightly weaker than expected, and US growth will continue to slow, the International Monetary Fund said Tuesday.

The IMF trimmed its global growth forecast for 2020 by 0.1 percentage points to 3.4%, saying that rising trade and geopolitical tensions had put economies in a “precarious” position. It expects growth of 3% this year, the weakest expansion since the global financial crisis.

“As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list,” the IMF said in its October World Economic Outlook. “Such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing, and raise world growth,” it said.

The United States is one of only a handful of economies with a rosier outlook for 2020 than when the IMF last compiled its forecasts in July.

The IMF now expects the American economy to grow by 2.1% next year, a 0.2 percentage point improvement from the previous forecast but considerably weaker than the 4% rate President Donald Trump promised earlier in his presidency. And it’s still slower than US growth of 2.4% the IMF expects in 2019.

Stimulus from a recent two-year federal budget deal and the Federal Reserve’s rate cuts would offset the “fading effects” of earlier tax cuts, but uncertainty over trade policy would hamper US growth, the IMF said.

The forecasts are the first since Kristalina Georgieva took over as managing director of the IMF earlier this month, succeeding Christine Lagarde who departed to lead the European Central Bank.

The slight global recovery expected in 2020 will not be “broad based,” the IMF said. Most of the stronger growth will come from distressed emerging markets such as Turkey, Argentina and Iran.

How to spur growth

Ending the trade war between the United States and China would be one way to boost growth. Talks between the world’s two largest economies progressed last week, but a comprehensive deal remains elusive.

With tariffs on hundreds of billions of dollars worth of goods remaining in place, governments need to do more to support growth where possible and not rely on central bank stimulus, the IMF said.

“Monetary policy cannot be the only game in town and should be coupled with fiscal support where fiscal space is available and where policy is not already too expansionary,” it said.

Some of the world’s most powerful central banks have pushed interest rates into negative territory in order to spur growth. Last month, the ECB pushed its benchmark rate further below zero, to minus 0.5%.

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