Focus: IMF says countries may need to coordinate stimulus action as global growth cools

Washington, April 9 (Reuters) - The International Monetary Fund on Tuesday cut its forecast for global economic growth this year and said the global economy is slowing more than expected and a sharp downturn may require world leaders to coordinate stimulus measures.

The global lender's semi-annual World Economic Outlook pointed to the US-China trade war and the possibility of a disorderly Brexit as two key risks. The IMF warned that further downgrades to the outlook were highly likely.

The IMF said some major economies, including China and Germany, may need to take short-term action.

"The global economy is at a delicate moment," IMF chief economist Gita Gopinath said at a news conference to discuss the report.

Gopinath said governments "across economies" may need to open their purse strings at the same time if the slowdown deepens. Looser monetary policy may also be needed, he added.

The comments sent a dire warning to global officials gathering in Washington this week for the spring meetings of the IMF and World Bank. The world responded to the 2008 financial crisis with a coordinated fiscal stimulus.

The IMF said the global economy was likely to grow 3.3 per cent this year, the slowest pace since 2016. The latest estimate is 0.2 percentage points lower than the January estimate. This is the third time since October that the IMF has cut its global growth forecast.

The IMF expects global growth to remain unchanged at 3.6 per cent next year.

More than two-thirds of the projected slowdown in economic growth in 2019 is due to problems in rich countries, including EU members.

"In this context, avoiding policy mistakes that could hurt economic activity should be a priority," the IMF said.

One potential mistake is Britain's indecision over how to leave the EU. Despite the looming deadline, London has yet to decide how it will protect its economy during the Brexit process.

The IMF's latest forecasts assume an orderly Brexit, but it said a disorderly exit could shave more than 0.2 percentage points off global growth in 2019. The IMF said the Bank of England should remain "cautious" on interest rate policy, in an apparent reminder to wait for clarity on the outcome of Brexit before deciding whether to raise rates.

Economic growth in Europe has slowed sharply, but the IMF said it still believes the sharp slowdown in Europe and some emerging market economies will reverse in the second half of 2019 and resume accelerating growth.

The outlook for Germany, Europe's economic locomotive, has been hit by slowing export demand and consumer spending, as well as new emissions standards that have crimped car sales.

The IMF said Germany may have to act quickly on fiscal stimulus and called on the European Central Bank to continue stimulating the region's economy. The IMF also cut its growth forecast for Japan following a series of natural disasters.

The U.S. economy, while outperforming its peers in the developed world, has also been downgraded amid signs that the fiscal stimulus from tax cuts is generating much less activity than previously thought.

Worries about the global economic outlook sent U.S. Treasury yields lower and U.S. stocks lower, with the S&P 500 down about 0.4 percent and the Dow Jones industrial average down about 0.6 percent.

** China's economy shows Signs of recovery **

The IMF said it supports the U.S. Federal Reserve's decision to pause its rate hike cycle, believing it will ease financial conditions and support the U.S. and global economy this year. The IMF raised its 2020 US growth forecast by 0.1 percentage point to 1.9 per cent.

The IMF said it slightly raised its forecast for China's economic growth this year to 6.3 percent, in part because earlier expectations of an escalation in the trade war between the United States and China did not materialize.

Still, ongoing tensions between the United States and China and other major trading partners remain a risk to the global economy.

U.S. tariffs on Chinese imports have already dealt a blow to China's economic growth, while also putting pressure on Latin America and other regions that rely on Chinese demand for commodities.

The IMF also cut its 2019 growth forecasts for Canada, Latin America and the Middle East and North Africa.

When U.S. President Donald Trump imposed tariffs on Chinese imports starting in 2018, China was trying to rebalance its massive economy away from its reliance on investment and exports. In response, China imposed retaliatory tariffs on American goods.

The IMF said Beijing might need fiscal stimulus "to avoid a sharp near-term slowdown in growth that could undermine the overall reform programme".

Ms. Gopinath, the IMF's chief economist, said there were some tentative signs of recovery in the Chinese economy, which she called 'green shoots.'


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