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IMF Forecast Triggers Fears of Global Economy at Brink of Recession

Last Updated September 23, 2020 1:10 PM
Harsh Chauhan
Last Updated September 23, 2020 1:10 PM

The belief that there will be a recession next year has been finding a lot of takers of late. Prominent economists and investors believe that a recession could arrive as soon as next year, and the International Monetary Fund (IMF) looks all set to add to that gloom, according to a Bloomberg  report.

IMF’s growth rate cut will put the global economy on the edge of a recession

Bloomberg reports that the new IMF chief Kristalina Georgieva is worried that the slowdown in global economic growth could spread. This could prompt the organization to lower its 2019 global growth estimate from its current prediction of 3.2 percent and spark fears of a recession. That’s because the current estimate is already the lowest level seen in the last decade.

What’s more, it wasn’t long ago that the IMF had reduced its global economic growth estimate for 2019. In July, the Fund lowered its 2019 growth forecast from its April estimate of 3.3 percent to the current level, citing tensions arising out of the U.S.-China trade war , a no-deal Brexit, and some other challenges. The IMF had also lowered its 2020 growth estimate to 3.5 percent from 3.6 percent.

If the IMF decides to lower its 2019 and 2020 economic growth estimates once again, predictions made by bond investor Jeffrey Gundlach and economist Robert Shiller about a potential recession next year will gain more credibility.

And don’t be surprised if the IMF institutes another cut in the global economic growth rate for this year as key indicators across the world’s biggest economies are heading in the wrong direction.

A ton of negative data doesn’t bode well for the world economy

According to Bloomberg Economics’ global GDP tracker, global economic expansion has dropped to just 2.2 percent in the third quarter of 2019. The metric was showing a much stronger economic growth of 4.7 percent at the beginning of 2018.

The sharp fall in global economic growth and the increasing chances of a recession are not surprising as the trade war has dented manufacturing activity in the U.S. and China. Reuters reports that China’s imports and exports for the month of September declined  8.5 percent and 3.2 percent, respectively, from a year ago.

Economists were originally expecting exports to fall 3 percent and imports to decline by 5.2 percent.

Meanwhile, China’s official manufacturing PMI has been shrinking for the past five months, stoking fears of a recession. On the other hand, U.S. manufacturing data is also showing that a recession is almost here. Manufacturing activity in the U.S. for the month of September fell to its lowest level in the over 10 years, driven by the effects of the trade war.

Other important pillars of global economic growth – such as India – are not in great shape either. Moody’s has lowered India’s economic growth forecast to 5.8 percent from the earlier estimate of 6.2 percent thanks to lack of demand, weak liquidity, and tepid consumer spending.

In all, the IMF believes that 90% of the countries across the globe will witness slower economic expansion in 2019.


And, we could be headed for a full-blown recession if things don’t improve on a global scale.