Liam Dann: IMF outlook gets gloomier as global risks grow

The mood at the World Economic forum in Davos is looking less optimistic this year. Photo / AP

COMMENT:

As world leaders, including Prime Minister Jacinda Ardern, head to the World Economic Forum at Davos, the global economic outlook is once again starting to darken.

On the eve of high-powered Swiss talkfest the International Monetary Fund (IMF) has cut its global economic growth forecasts again - the second downgrade in three months.

Against a backdrop of a slowing Chinese GDP growth, a US Government shutdown, trade wars and ongoing Brexit uncertainty, it is looking like a much less bullish start to the year than we saw last year.

Also from Davos, PWC has released its annual global CEO survey with the results showing an increasingly pessimistic outlook.

Nearly 30 per cent of the 1300 business leaders PWC polled believe global economic growth will decline in the next 12 months.

This time last year just five per cent were feeling gloomy – something PWC describes as a record jump in pessimism.

At Davos 2018 there was much excitement about the emergence of synchronised global growth – ie the economies of all the major nations firing at once.

Things were briefly all very optimistic. But if you blinked you might have missed it.

Global markets plunged about a week later (February 6) and have been volatile ever since.

Oil has prices have soared and crashed. Economic growth in Europe also appears to be slowing.

The US Treasury yield curve – the great harbinger of economic doom – is threatening to invert, prompting plenty of talk about when (not if) the US will face its next recession.

But amid all the headlines about uncertainty and renewed risk it is important to keep sight that forecasts are still broadly positive - even is the sentiment has cooled.

We should still technically see synchronised global growth this year and if it's not quite as flash as previously forecast, it still beats a financial crisis.

The IMF now predicts the global economy will grow at 3.5 per cent in 2019 and 3.6 per cent in 2020.

That's down 0.2 and 0.1 per cent respectively from its forecasts in October, and well off the 3.9 per cent it was forecasting for 2019 at this time last year.

"After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising," IMF Managing Director Christine Lagarde said.

"Does that mean a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased."

That's hardly disastrous for local economic stability - more of a note of caution.

New Zealand is heading into its second decade of sustained economic growth, still enjoying one of the longest-ever recession-free eras.

The end may be nigh, it may be imminent or it may be overdue. But until it arrives it would be a shame to give in to gloom.