IMF cuts economic growth forecast over trade wars

10 Oct 18

The International Monetary Fund has cut its global economic growth forecast for this year and the next by 0.2 percentage points because of worldwide trade wars.

Presenting its World Economic Outlook in Bali yesterday morning, the Washington-based lender revised its projections for global growth to 3.7% for 2018 and 2019, down from the 3.9% forecast in the last outlook in April. 

A full-blown trade war between the US and China will make a dent in the world economy, the outlook said.

“Escalating trade tensions and the potential shift away from a multilateral, rules-based trading system are key threats to the global outlook,” the IMF warned.

IMF’s chief economist Maurice Obstfeld said that this without multilateralism “the world will be a poorer and more dangerous place”. 

He said:Uncertainty over trade policy is prominent in the wake of US actions - or threatened actions - on several fronts, the responses by its trading partners, and a general weakening of multilateral consultation on trade issues.

“Trade policy reflects politics and politics remain unsettled in several countries, posing further risks,” he said.

Most recently, China announced retaliatory tariffs on $60bn of US goods, after Donald Trump imposed tariffs on the major Asian economy and many other countries around the world.

The outlook added that US growth, which has been stable in the past year fuelled by tax cuts and rising demand for imports, would also decline as a result of the trade war.

Obstfeld said: “US growth will decline once parts of its fiscal stimulus go into reverse.

“Notwithstanding the present demand momentum, we have downgraded out 2019 US growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China’s retaliation.”

The American growth forecast was cut to 2.5% from 2.7% and China’s forecast to 6.2% from 6.4% for 2019. The 2018 predictions were left unchanged for the two countries at 2.9% for the US and 6.6% for China.

Obstfeld added in a press conference at the IMF and World Bank’s annual meeting in Bali that if the two major economic players were to resolve their trade differences, it “would be a significant upside to the forecast”.

Last week, IMF chief Christine Lagarde hinted that the fund would cut the global growth forecast, as she said the outlook was “less bright”.

The downgrade also reflects weaker performances by eurozone countries and the uncertainty of the Brexit negotiations.

The fund predicted the UK economy to expand by 1.4% this year and 1.5% in 2019, but warned that a no-deal Brexit remained a risk.

The eurozone’s 2018 forecast was cut to 2.0% from 2.2%.

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