DAVOS, Switzerland (AFP) – Global elites arriving in Davos for the World Economic Forum (WEF) on Monday were met with urgent International Monetary Fund (IMF) warnings about swelling inequality and popular anger fuelling dangerous economic uncertainty.
Even before the official kick-off of the annual week of networking and socialising by the world’s rich and influential, it was clear that this year’s event would be under the sign of increasing global instability, risk and an upsurge in angry populism.
Leaders from the United States (US), France, Britain and Zimbabwe have stayed home from the posh Swiss ski resort in order to put out political fires back home, largely buffeted by popular anger against the elite.
The IMF warned in an update to its global economic forecasts that US-China trade confrontations, Brexit and other sources of uncertainty were threatening to drag down global growth even further than its already pessimistic outlook published three months ago.
The IMF cut the global gross domestic product (GDP) forecast for this year to 3.5 per cent from the 3.7 per cent projected in October. For 2020, the estimate was trimmed to 3.6 per cent.
“The bottom line is that after two years of solid expansion, the world economy is growing more slowly than expected, and risks are rising,” IMF chief Christine Lagarde told reporters in Davos.
“Does that mean that a global recession is around the corner?” she asked. “No. But the risk of a sharper decline in global growth has certainly increased.”
IMF chief economist Gita Gopinath pointed to the dangerous uncertainty surrounding Britain’s divorce from the European Union (EU), with no solution in sight with just weeks to go before the exit date.
“It is imperative for leaders to resolve this uncertainty immediately,” Gopinath said.
The IMF released its report at the annual gathering of economic and financial leaders and once again urged action to defuse the risks.
Several major economies saw sharp downgrades to the GDP estimates, including Germany, Italy and Mexico, along with a smaller cut for France amid the “yellow vest” demonstrations that have riven the country.
However, the US and China, the world’s two largest economies and the source of much of the global risk because of a trade war, did not see revisions.
The US is expected to grow 2.5 per cent this year and 1.5 per cent in 2020. China GDP is forecast to expand 6.2 per cent in both years.
An “escalation of trade tensions … remains a key source of risk to the outlook,” the IMF warned, pointing to the sharp decline in stock markets in the final weeks of 2018.
Washington and Beijing declared a 90-day truce on December 1, but the risk remains that tensions will flare up again in the spring and “casts a shadow over global economic prospects.”
Another major concern is the potential for a more severe slowdown in China, which would have repercussions throughout Asia.
So far, a fiscal stimulus in China has cushioned the impact of the trade disputes, but the IMF insisted the two sides “resolve cooperatively and quickly their trade disagreements.”
Beyond the trade risks, the month-long US government shutdown and the possibility of a no-deal Brexit alarmed the IMF.
It forecast 1.5 per cent 2019 growth for Britain, the same as in October, but warned the estimate is fraught given the unknowns of Brexit.
In France, the impact of massive street protests could trim growth even further than the 1.5 per cent forecast for this year.
Mexico saw sharp downward revisions to 2.1 per cent and 2.2 per cent this year and next, and crisis-stuck Venezuela is likely to see an “even more severe contraction.”