2019 is proving a tough year for the global economy, following a strong 2017 and 2018.
An upcoming recession is on everybody’s mind, except for one person: Christine Lagarde, Managing Director of the International Monetary Fund (IMF).
Dark clouds ahead, but there is a silver lining
Speaking yesterday to the US Chamber of Commerce, in a preview of the April 12-14 IMF and World Bank Spring Meetings, Lagarde revealed some valuable insights into how the international economy will shape up.
The global economy is in “a delicate moment,” she told CNBC.
“In January, the IMF projected global growth for 2019 and 2020 at around 3.5%, less than in the recent past but still reasonable,” she said, as reported by Reuters. “It has since lost further momentum, as you will see from our updated forecast next week.”
“Only two years ago, 75% of the global economy experienced an upswing,” she said in her speech yesterday, according to The Epoch Times. “For this year, we expect 70% of the global economy to experience a slowdown in growth.”
As a result, “the U.S. is not immune to the deceleration anymore,” she told CNBC.
Still, Lagarde and the IMF hold strong faith in the economy, and believe a rebound will occur in late 2019 and into 2020.
The recent policy responses, such as the Federal Reserve’s “more patient pace of monetary policy normalization” and increased stimulus in China, have supported the easing of financial conditions, The Epoch Times noted her saying.
What obstacles stand in the way of economic growth?
US-China trade war
Most obviously, the elephant in the room has to be the ongoing US-China trade war that has proved a major obstacle for the better part of 2018 and now into 2019. The US has already placed tariffs on $250 billion’s worth of Chinese goods. In return, China has set $110 billion on American goods.
“Lagarde said that the IMF has revised its analysis of the U.S.-China trade war’s impacts, showing that if all trade between the world’s two largest economies were subjected to a 25% tariff, U.S. gross domestic product would fall by up to 0.6% while China’s GDP would fall by up to 1.5%,” Reuters reported.
In recent weeks, however, the trade war has taken an upturn. A scheduled tariff by the US was postponed by President Donald Trump, citing “advanced talks” with China at the time, indicating that progress was finally being made.
While no major milestones have been crossed since then, there hasn’t been a notable escalation in this conflict, and we could very much be looking at reconciliation in the near future.
Tensions in Europe revolving around the endless ‘will they-won’t they’ of UK’s exit from the EU continues to rattle international markets, shaking investor faith and casting doubt on future economic outlook.
The whole BREXIT ordeal remains a wild card at the moment, and is doing little to improve prospects.
While the British deal with BREXIT, the French are contending with their own woes. The Gilets Jaunes, or the Yellow Vest Movement, has seen civil unrest in the European nation. This brought further turmoil into the European state of things, sparked by rising fuel prices and taxes.
US sanctions on Iran
With the rest of the US’ sanctions on Iran going into place back in November of last year, Iran has found itself in an unenviable position. Despite surprising waivers by the US, allowing many of the importers of Iranian oil to continue purchasing from the country, the economies of these countries are on a ticking clock.
US waivers to China, India, Japan, South Korea and Turkey expire in May, Reuters has said with those applying to Italy, Greece and Taiwan will not be subject to renewal.
“The United States is likely to extend [these] waivers from sanctions on Iranian oil imports in May but will reduce the number of countries receiving them to placate top buyers China and India and to decrease the chance of higher oil prices,” Reuters reported analysts saying.
When Iran oil is eventually taken out of the equation, the burden will fall on OPEC+ producers to shoulder the lost output.