DAVOS, Switzerland — Fears are rising about the state of the world’s biggest economies, with China posting its worst annual growth in decades and the United States injecting more uncertainty with tariffs and a lengthy government shutdown.
China reported Monday that its economy expanded by 6.6 percent last year — a figure that would be good for many countries but represents the slowest growth for China in 28 years. Meanwhile, the International Monetary Fund downgraded its expectations for the global economy, highlighting sharp declines in Europe and warning that the risks of a major slowdown have increased.
The pair of announcements came as top executives and world leaders gathered in this ritzy ski resort town for the annual World Economic Forum. In contrast to a year ago — when President Trump and other world leaders talked about global prosperity — this year attendees expressed worry that the United States was undermining its own economy, and the rest of the world’s, via a trade war and the longest partial government shutdown in U.S. history.
In the United States, the shutdown has already cut into growth, according to numerous economists. Even U.S. consumers, who have remained resilient for months, have been shaken. Early this month, consumer confidence slumped to the lowest level of Trump’s presidency, according to the University of Michigan’s consumer sentiment survey.
While few see a recession as imminent, the high-level officials and executives at Davos catalogue a growing number of risks, including the trade war, the potential of Britain leaving the European Union without a final agreement with the E.U., rising interest rates, high global debt levels, and more polarized politics around the world.
“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” said Christine Lagarde, managing director of the International Monetary Fund. “Does that mean a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased.”
The scene at Davos epitomized the changes in the world economy. A year ago, Trump and other foreign leaders gathered here to try to put their differences aside. It came at a time when the major countries were growing in sync with one another, and Trump received a warm welcome after large U.S. corporate tax cuts.
But now Trump, British Prime Minister Theresa May and other world leaders are sitting out the conference, dealing with problems back at home, and the hope for expanded global business has been dashed by the trade war and other setbacks.
“I think there is anxiety. There are concerns the slowdown could be quite deep,” said John Hagel, co-chairman of Deloitte’s Center for the Edge, a research group. “The more we can show some progress and resolution of some trade disputes, that would help.”
The IMF is the latest institution to scale back its growth forecasts, following downward revisions by the Federal Reserve and many banks. The IMF predicts 3.5 percent global growth in 2019 and 3.6 percent in 2020, down from 3.7 percent forecasts for both years in the fall.
But IMF economists warned that they had already downgraded growth in China and the United States in the autumn because of the trade war and that they only see greater risks of a slide from here.
“It’s absolutely crucial for us to turn around the momentum, and policy can really help,” said Gita Gopinath, the new head of research at the IMF. “The downward revisions are modest; however, we believe the risks to more significant downward corrections are rising.”
The rapidly slowing euro zone, especially Germany, France and Italy, was the biggest factor in the revised predictions. Germany is struggling as exports weaken and its auto sector tries to adjust to new regulations. France is trying to rebound from street protests over a climate tax that have dampened sentiment. And Italy is battling debt problems and sluggish spending.
“I think it’s not ruled out that you might see one or two weak quarters in the European economy bordering on a technical recession,” said Axel Weber, chairman of UBS. But he said he was optimistic that it would be a temporary “soft spot.”
The IMF forecasts that the U.S. economy will grow at 2.5 percent this year and 1.8 percent next year. These predictions are unchanged from what the IMF said in October, but they represent a noticeable decline from about 3 percent growth last year. China is expected to grow at 6.2 percent both years, even slower than last year.
As an economy slows, it’s easier for it to be knocked off track, many economists say. “When you’re growing at 3 percent, you need a big shock to hurt the economy,” said Nariman Behravesh, chief economist at IHS Markit. “When you’re down to 1.5 to 2 percent growth, all it takes is a little shock.”
In Beijing and across China, authorities have been pulling out all the stops to try to avoid a hard landing for the economy, promoting measures that are both traditional and inventive. China’s central bank has allowed banks to lend more against their reserves, a move that could free up almost $120 billion for loans.
The central government is cutting tax rates for small businesses and reducing value-added taxes in some industries, particularly in manufacturing. It is also pouring more than $125 billion into new rail projects.
Retail sales, industrial production and property sales in China all slowed in the final quarter of last year. Car sales were particularly poor, recording the first annual drop in more than two decades, and the unemployment rate is climbing.
But many economists consider official Chinese figures too rosy.
Using a range of data to come up with a more reliable figure, Julian Evans-Pritchard, a China analyst at the Capital Economics consultancy, said that the growth rate probably slowed to 5.3 percent in the last three months of the year.
A key question is how far Beijing will go to mollify Trump and end the trade war.
“The economy is a much bigger problem for Xi Jinping than the trade war. The last thing he wants is a bunch of angry people protesting because they’ve lost their jobs,” said Andrew Collier, managing director of Orient Capital Research, a Hong Kong-based consultancy.
“Slowing economic growth is putting pressure on him to solve as many problems as he can, and the trade war will be top of his list,” he said.
In the United States, there is no end in sight to the government shutdown, and Trump has not removed any of the tariffs he put in place. Twelve percent of U.S. imports still have new levies on them, and Trump has threatened to impose more.
Trump has argued that any short-term pain will be worth the long-term benefit — border security in the case of the government shutdown, and more beneficial trade deals in the case of the tariffs.
“China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal, and stop playing around!” Trump tweeted Monday evening.
But in Davos, others argued the United States was relinquishing its historic role in the global economy.
“If you want to be a superpower in the world — and the U.S. still is — you have to engage with people,” said Hans-Paul Bürkner, chair of the Boston Consulting Group. He warned that “everybody will be a bit more careful” until the shutdown and trade disputes are resolved.
Surveys released in recent days by global consultancies show more alarm bells in boardrooms around the world.
Chief executives ranked a global recession as their No. 1 concern for 2019, according to a survey of nearly 800 top business leaders around the world released Thursday by the Conference Board. Global trade threats came in second.
A survey of 1,300 chief executives released Monday by PwC found that 30 percent of business leaders believe that global growth will decline in the next 12 months, a record jump in pessimism to about six times the number who said that last year.
The most pronounced decline in optimism was in North America, where it dropped from 63 percent a year ago to 37 percent now, largely because of the fading fiscal stimulus from the tax cuts and the ongoing trade standoff that business executives thought would be short-lived but keeps going.
“With the rise of trade tension and protectionism, it stands to reason that confidence is waning,” said Bob Moritz, global chairman of PwC. Executives “want a little bit more certainty and they want stability.”
Fifield reported from Beijing.