The International Monetary Fund cut its global economic growth forecast for the second time in three months Monday, citing concerns over unresolved trade conflicts between Washington, Brussels and Beijing and slowing activity in Europe.
The Fund sees the world economy growing at 3.5% this year and 3.6% in 2020, clipping 0.2 and 0.1 percentage points respectively from is prior estimate, published as part of its regular World Economic Update in November. The revisions were published on the eve of this year's World Economic Forum, which kicks off in the Swiss resort town of Davos on Tuesday.
"Risks to global growth tilt to the downside. An escalation of trade tensions beyond those already incorporated in the forecast remains a key source of risk to the outlook," the IMF said. "Higher trade policy uncertainty and concerns over escalation and retaliation would lower business investment, disrupt supply chains and slow productivity growth."
The resulting depressed outlook for corporate profitability could dent financial market sentiment and further dampen growth," the Fund added.
Last week, data from Germany's Federal Statistics Office showed that domestic GDP growth slowed to the weakest in five years, as the ongoing U.S-China trade war, alongside disputes on tariffs between Washington and Brussels, hit Europe's largest economy.
Destatis said 2018 GDP expanded by 1.5% last year, the slowest pace since 2013, but insisted the economy avoided recession by eking out a modest fourth quarter expansion after contracting through the three months ending in September.
Germany's auto sector was the principal catalyst for the slowdown, as inventories from the country's automakers piled up over the second half of the year amid new emissions standards and a ban on diesel engine cars in several cities hammered sales.
The IMF expects Eurozone GDP growth of 1.8% this year and 1.6% in 2020, as the impact of the European Central Bank's policy normalization kicks-in, while U.S. growth is pegged at 2.5% this year and 1.8% in 2020.
China's National Bureau of Statistics said Monday that fourth quarter GDP slowed to 6.4%, taking the full-year advance to 6.4%, down from 6.8% in 2017 and the slowest since 1990.
Domestic demand and export growth have both suffered this year as the government moved to crack down on crippling pollution with tighter rules on building and emissions and the ongoing trade war with the United States had a knock-on effect through global supply chains, many of which eminate from the world's biggest exporter.
The Fund, however, kept its 2019 China GDP forecast unchanged at 6.2% for this year and next, but cautioned that "concerns about the health of China's economy can trigger abrupt, wide-reaching sell-offs in financial and commodity markets that place its trading partners, commodity exporters, and other emerging markets under pressure".