Investor Alert

Oct. 16, 2019, 8:22 a.m. EDT

IMF says global economy to grow at slowest pace since 2008 financial crisis

Global recession could well materialize, IMF warns

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By Greg Robb, MarketWatch

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The upturn in 2020 is based on projected improvement in a number of stressed emerging market economies like Turkey, Iran and Argentina.

“With uncertainty about prospects for several of these countries, a projected slowdown in China and the U.S. and prominent downside risks, a much more subdued pace of global activity could well materialize,” the IMF said.

Risks of a sharp slowdown are growing.

Gopinath raised the possibility of the need for emergency action in the form of “an internationally coordinated fiscal response” if economic growth were to deteriorate further.

U.S. stocks were immune to pessimism with both the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.36%   and the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.45%   rising closer to record highs on Tuesday.

The yield on the 10-year U.S. Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00%   inched higher to 1.774%.

Germany should boost fiscal spending, the agency said.

“A country like Germany should take advantage of negative borrowing rates to invest in social and infrastructure capital, even from a pure cost-benefit perspective,” the IMF said.

2018 2019 forecast 2020 forecast
World output 3.6 3 3.4
United States 2.9 2.4 2.1
China 6.6 6.1 5.8
Germany 1.5 0.5 1.2
Japan 0.8 0.9 0.5
United Kingdom 1.4 1.2 1.4
Canada 1.9 1.5 1.8
Mexico 2 0.4 1.3
India 6.8 6.1 5.8
Brazil 1.1 0.9 2
France 1.7 1.2 1.3
Spain 2.6 2.2 1.8
Italy 0.9 0 0.5
Russia 2.3 1.1 1.9

While manufacturing has suffered globally, the service sector has held up, at least so far, but there is a concern this can’t last.

“The divergence between manufacturing and services has persisted for an atypically long duration, which raises concerns of whether and when weakness in manufacturing may spill over into the services sector,” she said.

The IMF said monetary policy easing by the Federal Reserve and other central banks has helped support growth and reduce downside risks.

Without this monetary stimulus, global growth would be lower by 0.5 percentage points in both 2019 and 2020.

The world economy is projected to grow slightly faster in 2021-24 thanks to growth in emerging market economies.

Yet growth in key economies, the U.S., China, euro area and Japan, the so-called “Gang of Four,” is expected to moderate “into 2020 and beyond.”

The U.S. and China - partners in misery
US : Dow Jones Global
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add Add to watchlist BX:TMUBMUSD10Y
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Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.

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