The global economy is slowing down, with help from the shutdown and Trump’s trade war

The International Monetary Fund (IMF) has issued a dire forecast for global economic growth, pointing to declining momentum in the midst of trade tensions between the United States and China, along with the longest U.S. government shutdown in history.

Fears of a global recession are growing, seemingly exacerbated by both the ongoing shutdown in the United States and a trade war instigated by President Donald Trump. On Monday, the IMF revised its global growth estimates, projecting a 3.5 percent growth rate in 2019 and a 3.6 percent growth rate next year. This marks a 0.2 and 0.1 percent downgrade, the second downward revision in two months.

“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” said IMF head Christine Lagarde on January 21 at the World Economic Forum in Davos, Switzerland. “But even as the economy continues to move ahead … it is facing significantly higher risks.”

Noting that “the balance of risks remains skewed to the downside,” the IMF forecast issued words of caution.

“Emerging market and developing economies have been tested by difficult external conditions over the past few months amid trade tensions, rising U.S. interest rates, dollar appreciation, capital outflows, and volatile oil prices,” the global money lender noted.

The IMF pointed to several reasons for the slowdown, including Brexit. Britain has thus far been unable to produce a clear plan for its exit from the European Union, something that could see the country and much of the world thrown into financial insecurity.

Another leading problem is the feud between the United States and China; the two world powers have exchanged barbs while escalating trade tariffs, which were the impetus for the last IMF downgrade in October.

These trade tensions have been met with problems posed by China’s own slowing economy. The country is seeing a much bigger than expected slowdown, sparking concerns that the world could be headed towards a significant period of global economic unrest.

Lagarde nonetheless moved to squash recession fears in Davos, appealing to world leaders to act calmly.

“Does that [the higher risks] mean a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased,” she said, noting that officials need to boost their economies’ resilience if a worldwide problem is to be avoided.

That may be a hard sell in the United States, where Trump has pushed an “America First” approach to global trade deals and other agreements. Last year, the president began ramping up tariffs, targeting both Europe and North America, along with China. That feud, which has eroded U.S. relations with many other countries, has also seen severe impacts in the United States.

Many U.S. businesses have taken a direct hit as China has responded with tit-for-tat tariffs, in addition to bearing the cost of increasingly expensive Chinese-made products that cannot be easily mass-manufactured in the United States, like solar panels.

Farmers have also suffered as products like soybeans have come under fire, leaving them worried for their finances in an already-precarious and declining industry. And while the U.S. Department of Agriculture (USDA) was meant to help aid farmers hurt by the trade war with a $12 billion mitigation relief program, many say that money has been slow to arrive.

Last week, USDA announced that it would temporarily re-open around half of the Farm Service Agency despite the shutdown in order to help with existing farm loans in advance of planting season and seemingly to assist with tariff relief money. But a number of farmers say they have not received the relief money they need amidst the shutdown.

The impasse’s impact on the USDA and other agencies has worried not only farmers but also virtually every sector of the economy. A University of Michigan Consumer Sentiment survey released last Friday found that consumer confidence is currently at the lowest point it has been during Trump’s presidency, with the decline primarily “focused on prospects for the domestic economy.”

The survey cites the U.S. government shutdown and the impacts of the tariffs as key causes of concern, along with financial market instability, the global slowdown, and a “lack of clarity about monetary policies” from the U.S. government.

While these have all had a direct impact on the U.S. economy, the survey notes that their indirect effect is that half of all consumers see the issues as hindering the president’s ability to focus on economic growth.

Citing the shutdown at home, Trump is notably absent from Davos this year after a much-covered appearance in 2018 where the president marketed the country as a business leader. In his absence, speakers this year focused on the shutdown’s potential impacts on the U.S. economy, as well as the trade war.

Like other speakers, Gita Gopinath, the IMF’s head of research, cautioned in Davos that lawmakers need to “come together” to work on economic solutions, with an emphasis on China and the United States.

“Higher trade uncertainty will further dampen investment and disrupt global supply chains,” she said.


 

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