By Josh Zumbrun 

The global economy is starting the year on weaker footing, according to new quarterly forecasts from the International Monetary Fund.

The IMF cut its forecasts for global growth in 2019 to 3.5% from 3.7% in previous forecasts released in October and from the 3.9% it had expected in July.

In the earlier forecasts the IMF had characterized growth as "plateauing" but now has conceded that the "global expansion has weakened."

The IMF's forecast has been pulled down in particular by poor economic performance out of Europe. Germany's growth forecast for this year was cut 0.6 percentage points due to weak consumption and industrial production data; Italy was cut by 0.4 points due to weak domestic demand and high government borrowing costs; and France was cut by 0.1 points due to the impact of ongoing street protests.

Many emerging markets also saw their forecasts fall, including Mexico, where private investment has been weak; energy-exporting economies that are pinched by the recent drop in oil prices; and Turkey, which the IMF expects to undergo a contraction after suffering an abrupt currency crisis last year.

The forecast was unchanged for the world's two largest economies, the U.S. and China. But the IMF had previously forecast that both economies would slow -- each by 0.4 points -- in 2019 compared with the previous year.

Financial markets have been closely focused on the weakening global growth backdrop, a key driver of the decline in stocks during the last three months of 2018. The new update to the IMF's World Economic Outlook, released by the IMF at a press briefing in Davos, Switzerland, includes reason to keep worrying.

The IMF sees several risks. At the top of the list are global trade tensions. The Fund said it welcomed the recent temporary truce between the U.S. and China, but said "the possibility of tensions resurfacing in the spring casts a shadow over global economic prospects."

The Fund also cited a number of reasons to worry about financial-market stability, including Italian fiscal policies, the partial U.S. government shutdown and the risk of a messy Brexit as the U.K. struggles to negotiate its divorce from the European Union.

But the forecasts, which are the first to be produced under the leadership of the Fund's new chief economist, Gita Gopinath, aren't entirely dire. Although 3.5% growth is a slowdown from the past two years, it is stronger than the 3.2% recorded in 2016, and still would represent a world economy that is expanding.

Forecasts were raised slightly for two major economies, India and Japan, and many of the sources of concern are self-inflicted wounds from political dysfunction, such as trade tensions between the U.S. and its trading partners, the U.S. shutdown, the U.K.'s Brexit and Europe's domestic strife.

"The main shared policy priority is for countries to resolve cooperatively and quickly their trade disagreements," the IMF said.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

 

(END) Dow Jones Newswires

January 21, 2019 08:14 ET (13:14 GMT)

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