IMF - Steer, Don't Drift': Managing Rising Risks to Keep the Global Economy on Course

First, the good news. Global growth is still at its highest level since 2011 when economies were rebounding post-crisis. Unemployment is still falling in most countries. And the proportion of the global population living in extreme poverty has dropped to a new record-low of less than 10 percent. [1]

In other words, the world continues to experience an expansion that holds the promise of higher incomes and living standards.

So is everything fine? Well, only up to a point.

For most countries, it has become more difficult to deliver on the promise of greater prosperity, because the global economic weather is beginning to change. What do I mean by that?

A year ago, I said, “the sun is shining—fix the roof.” Six months ago, I pointed to clouds of risk on the horizon.

Today, some of those risks have begun to materialize.


Indeed, there are signs that global growth has plateaued. It is becoming less synchronized, with fewer countries participating in the expansion.


In July, we projected 3.9 percent global growth for 2018 and 2019. The outlook has since become less bright, as you will see from our updated forecast next week.

A key issue is that rhetoric is morphing into a new reality of actual trade barriers. This is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise.

For now, the United States is growing strongly, supported by a procyclical fiscal expansion and still easy financial conditions—which can become a risk in a maturing business cycle.

In other advanced economies, however, there are signs of slowing, especially in the euro area and, to some extent, in Japan.

Emerging Asia continues to grow at higher rates than other regions, but we see indicators of moderation in China, which will be exacerbated by the trade disputes.

Meanwhile, challenges have been mounting in a number of other emerging market and low-income countries—including in Latin America, the Middle East, and Sub-Saharan Africa.

Many of these economies are facing pressures from a stronger U.S. dollar and a tightening of financial market conditions. Some of them are now facing capital outflows.

To be clear, we are not seeing broader financial contagion—so far—but we also know that conditions can change rapidly.

If the current trade disputes were to escalate further, they could deliver a shock to a broader range of emerging and developing economies.

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