Davos (Switzerland) (AFP) – Global elites arriving in Davos for the World Economic Forum on Monday were met with urgent 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 US, France, Britain and Zimbabawe 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 International Monetary Fund 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 GDP forecast for this year to 3.5 percent from the 3.7 percent projected in October. For 2020, the estimate was trimmed to 3.6 percent.
“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.”
– Brexit worries –
IMF chief economist Gita Gopinath pointed to the dangerous uncertainty surrounding Britain’s divorce from the European Union, 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.
And while growth is slowing, Oxfam warned in a report timed for the start of the Davos forum that inequality is not.
The UK charity found that the world’s 26 richest people now own the same wealth as the poorest half of humanity.
And while billionaires saw their combined fortunes grow by $2.5 billion each day last year, the world’s 3.8 billion poorest saw their relative wealth decline by 11 percent.
Oxfam warned that the growing gap between rich and poor was undermining the fight against poverty, damaging economies and fuelling public anger.
It also urged countries to slap more taxes on the wealthy.
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 percent this year and 1.5 percent in 2020. China GDP is forecast to expand 6.2 percent in both years.
– Weakened global economy –
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.”
– Brexit and Yellow Vests –
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 percent 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 percent forecast for this year.
Mexico saw sharp downward revisions to 2.1 percent and 2.2 percent this year and next, and crisis-stuck Venezuela is likely to see an “even more severe contraction.”
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