IMF downgrades world growth, warns of 'precarious' 2020

File: Emerging markets, which have suffered an exodus of capital of more than $83-billion in recent weeks, face financing needs of $2.5-trillion.

File: Emerging markets, which have suffered an exodus of capital of more than $83-billion in recent weeks, face financing needs of $2.5-trillion.

Brendan Smialowski / AFP

WASHINGTON - Global trade tensions, continued uncertainty and rising prospects for a no-deal Brexit are sapping the strength of the world economy, which faces a "precarious" 2020, the International Monetary Fund warned.

Trade conflicts are undercutting investment and weakening manufacturing, and the IMF urged countries to avoid using tariffs to resolve their differences.

In its quarterly update of its World Economic Outlook, the IMF trimmed the global forecast issued in April by 0.1 percentage point this year and next, with growth expected to hit 3.2 percent in 2019 and 3.5 percent in 2020.

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But the report sounded the alarm, saying things could easily go wrong.

"Global growth is sluggish and precarious, but it does not have to be this way because some of this is self-inflicted," IMF chief economist Gita Gopinath told reporters.

Gopinath warned that the recovery seen next year "is precarious" because "close to 70 percent of the increase relies on an improvement in the growth performance in stressed emerging market and developing economies and is therefore subject to high uncertainty."

However, the United States, which is at the center of most of the trade tensions, saw one of the rare upgrades in the report, as it got a short-term boost from strong economic growth in the early part of the year. 

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China, which is the main target of US trade actions, was already experiencing a slowdown. But "the negative effects of escalating tariffs and weakening external demand have added pressure," the report said. A sudden slowdown in China is a key risk to the world economy.

The latest forecast was once again full of downgrades, with small downward revisions for Germany and Japan, but much larger cuts for Brazil, Mexico, Russia, India and South Africa -- countries that were the engine for global growth in the wake of the 2008 financial crisis.

The IMF again stressed that resolving uncertainty remains the most pressing issue for the global economy and said governments should avoid "policy missteps" which could have "a severely debilitating effect on sentiment, growth and job creation."