The world economy absorbed more bad news Monday: The International Monetary Fund cut its growth forecast for 2019. And China, the world's second-biggest economy, said it had slowed to its weakest pace since 1990.
The IMF cut its estimate for global growth this year to 3.5 percent, from the 3.7 percent it had predicted in October and down from 2018's 3.7 percent. The fund cited heightened trade tensions and rising interest rates.
"After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising," said IMF Managing Director Christine Lagarde as she presented the forecasts at the World Economic Forum in Davos, Switzerland.
The IMF is not alone in its pessimism. The World Bank, the Organization for Economic Cooperation and Development and other forecasters have also downgraded their world growth estimates.
And consulting firm PricewaterhouseCoopers LLP said the latest edition of its annual survey of chief executive officers found 30 percent believe growth will decline this year, a sixfold increase from a year earlier, when 57 percent were optimistic.
The survey, released Monday, tallies responses from more than 1,300 CEOs worldwide and is billed as a good predictor of economic results.
In an interview, PricewaterhouseCoopers Chairman Bob Moritz said: "There's a not-surprising increase in the amount of pessimism from the CEOs and the global economy as they look at the next 12 months."
Among the key concerns is the Chinese economy. The country is slowing just as its leadership tries to turn it into a more modern economy by reducing its reliance on manufacturing and exports and increasing consumer spending.
On Monday, the country reported growth of 6.6 percent in 2018, the weakest since 1990. Demand for Chinese exports weakened last year, and the IMF expects China's growth to decelerate again this year -- to 6.2 percent.
The IMF left its prediction for U.S. growth this year unchanged at 2.5 percent -- though a continuation of the partial 31-day shutdown of the federal government poses a risk.
Rising interest rates in the U.S. and elsewhere are also pinching emerging-market governments and companies that borrowed heavily when rates were ultra-low in the aftermath of the 2007-09 recession.
As the debts roll over, those borrowers have to refinance at higher rates. A rising dollar is also making things harder for emerging-market borrowers who took out loans denominated in the U.S. currency.
The IMF trimmed the outlook for the 19 countries that use the euro as their currency to 1.6 percent from 1.8 percent. Germany got a big downgrade from the IMF, the result of weaker demand for German exports and problems in the country's auto industry.
Britain's messy divorce from the European Union and Italy's ongoing financial struggles also pose threats to growth in Europe.
Emerging-market countries are forecast to slow to 4.5 percent from 4.6 percent in 2018. That is partly a result of China's deceleration, which pinches developing countries that supply it with raw materials such as copper and iron ore.
"China's growth slowdown could be faster than expected especially if trade tensions continue, and this can trigger abrupt sell-offs in financial and commodity markets" -- something that happened when Chinese growth sputtered in 2015, said IMF chief economist Gita Gopinath.
Under President Donald Trump, the United States has imposed import taxes on steel, aluminum and hundreds of Chinese products, drawing retaliation from China and other U.S. trading partners.
"Higher trade uncertainty will further dampen investment and disrupt global supply chains," Gopinath said.
As a critical round of talks with China kicks off next week, the Trump administration is increasingly pessimistic that Beijing will make the kind of deep structural changes to its economy that the United States wants as part of a comprehensive trade agreement, according to officials involved with the talks.
A Chinese delegation led by Liu He, China's vice premier, will meet with Robert Lighthizer, the Trump administration's top trade negotiator, and Treasury Secretary Steve Mnuchin on Jan. 30 and 31. The two countries are racing to strike an agreement by March 2, a deadline set by Trump and President Xi Jinping of China.
TRUMP VOICES OPTIMISM
Over the weekend, Trump expressed hope a deal could be reached but dismissed suggestions that the United States would roll back tariffs in advance of concessions from China.
Despite Trump's optimism about reaching a deal, others in the administration and on Capitol Hill have been more circumspect.
"This is an ongoing process with the Chinese that is nowhere near completion," a Treasury spokesman said, rebutting an earlier suggestion that Mnuchin had recommended rolling back tariffs to help jump-start the talks.
Last week, Sen. Chuck Grassley, R-Iowa, chairman of the Senate Finance Committee, said Lighthizer, who is leading the talks, had told him there had been no progress on the "structural" changes that the administration sought from China.
Lighthizer, a longtime China hawk, has expressed concern to colleagues and business groups that Trump could accept a watered-down deal that reduces the trade deficit but offers only symbolic structural changes to help end the trade war and lift the stock market.
In an interview on the Fox Business Network on Friday, Larry Kudlow, director of the National Economic Council, said he was hopeful that a deal would be reached but acknowledged that many details still needed to be determined.
"The technology stuff has not been dealt with, the enforcement stuff has not been dealt with," Kudlow said. "The commodity stuff and the tariff rates, we're moving on the right track."
For years, U.S. companies, including technology firms and automakers, have been clamoring for such changes as they try to gain access to China's growing market.
The administration is also pressuring Beijing to scale back subsidies of state-owned enterprises, drastically open its markets to foreign investment and end its long-standing practice of forcing U.S. companies to hand over trade secrets.
"I would have a hard time, especially considering what's happening in Washington, believing that this will be wrapped up in a little bow by March," said Charles Freeman, senior vice president for Asia at the U.S. Chamber of Commerce.
China's economic problems began before Trump began imposing tariffs on Chinese-made goods. That said, the trade war is not helping.
"The economy is a much bigger problem for Xi Jinping than the trade war. The last thing he wants is a bunch of angry people protesting because they've lost their jobs," said Andrew Collier, managing director of Orient Capital Research, a Hong Kong-based consultancy.
Many economists take official Chinese figures with a large pinch of salt. Using a range of data to come up with a more reliable figure, Julian Evans-Pritchard, a China analyst at the Capital Economics consultancy, said that the growth rate probably slowed to 5.3 percent in the last three months of the year.
Retail sales, industrial production and property sales all slowed in the final quarter of last year. From tech companies to factories, workers are being laid off. This trend could worsen after the Chinese New Year holiday at the beginning of next month, when millions of migrant workers will return to their hometowns -- and may not have jobs to return to in the cities.
Information for this article was contributed by Paul Wiseman, Jamey Keaten and Ivana Bzganovic of The Associated Press; by Alan Rappeport and Keith Bradsher of The New York Times; and by Anna Fifield of The Washington Post.
A Section on 01/22/2019
Print Headline: IMF trims forecast for world economy; China’s growth pace slowest since ’90