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IMF says first-quarter global trade growth slowest since 2012, big downside risk

Economy Jul 23, 2019 04:07PM ET
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By Dave Sherwood

SANTIAGO (Reuters) - Global trade expanded by just 0.5% in the first quarter of 2019, marking the slowest year-on-year pace of growth since 2012 amid signs a more significant slowdown is possible, International Monetary Fund officials said on Tuesday.

The IMF on Tuesday lowered its forecast for global growth this year and next, warning that more U.S.-China tariffs, auto tariffs or a disorderly Brexit could further slow growth, weaken investment and disrupt supply chains.

IMF chief economist Gita Gopinath told reporters in Santiago, Chile, the global lender did not see signs of a recession, but did see "significant downside risks" for global growth going forward, including escalating trade wars.

Gian Maria Milesi-Ferretti, deputy director of the IMF's research department, told Reuters in an interview sluggish trade was due to several factors, including uncertainty caused by the U.S.-China trade war, weaker investment and cyclical weakness in the automotive and technology sectors.

"The end of 2018 was quite weak," Milesi-Ferretti said. "You have a combination of factors at play here, some of which are of a temporary nature and some of which may be a sign of a more significant slowdown."

Milesi-Ferretti said trade was mainly driven by investment goods, and investment activity had been weak in Latin America, Europe and, importantly, China, which was facing a sizeable slowdown in domestic demand.

"When investment slows in China it shows on the global radar screen," he said.

Global trade had also been hit by a down cycle in trade in goods and components associated with the production of tech products such as iPhones and other electronics.

"That cycle had provided a big boost to global trade in late 2017, but it has turned and it has been quite weak recently and that shows in the trade numbers, particularly in Asia," Milesi-Ferretti said.

Reduced demand for cars and disruptions to car production in Germany were another factor behind sluggish trade, he added.

"When you have an increase in uncertainty ... the first thing that consumers do is cut purchases of durables and wait for the situation to clarify," Milesi-Ferretti said.

He said tariffs imposed by the United States and China also affected investment plans, further dampening the outlook.

U.S. President Donald Trump has threatened to impose tariffs on the remaining $300 billion of Chinese imports still free of them, and to raise tariffs on European and Japanese auto imports to 25%. The moves have triggered retaliatory measures.

Concerns about the tariffs means "firms may think twice before setting up production facilities overseas, before expanding production, because they want to know what the global environment is going to look like," Milesi-Ferretti said.

He said it was unclear how quickly economies would recover once tariffs were lifted because it would depend on whether people felt a more durable resolution had been found.

The IMF economist also cited growing anecdotal evidence about a structural shift in global supply chains triggered by the current trade tensions around the globe.

"These are not things that happen overnight. You don't change the structure of your supply chain overnight," he said. "But this is something that may well happen."

He said spreading production globally had helped boost efficiency and productivity, but the current situation also revealed that such systems were vulnerable.

IMF says first-quarter global trade growth slowest since 2012, big downside risk

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