International Monetary Fund downgrades global growth outlook, places responsibility on US-China trade tensions

13 October, 2018, 10:01 | Author: Gerard Cortez
  • IMF upgrades forecast for Russia's growth to 1.8% in 2019

The International Monetary Fund has warned a trade war between the U.S. and China risks making the world a "poorer and more unsafe place" in its latest assessment of the global economy.

That includes President Donald Trump's imposition of tariffs on US$250 billion in Chinese goods, as well as on aluminium, steel and other products worldwide.

The IMF warned that China's growth even risked declining by a full percentage point by next year in the event of a "worse-case" scenario, involving further tariffs coupled with a collapse in confidence by businesses and markets.

Such trade war will have a deep impact the global economy, according to the IMF's projections. "The prime minister after consulting everyone decided today that we should open talks with the IMF", Umar said.

For the global economy, the International Monetary Fund predicts a 3.7-percent growth in the economy in 2018-2019.

Growth of less than five percent would be unprecedented for China since it began its economic reforms in the 1970s, and complicate its efforts to move towards a more balanced economy with a greater role for services.

The IMF expects SA's economy to expand by 1.4% in 2019, down from its April projection of 1.7%. The Fund's analysts point out that the steady recovery, which has been occurring since mid-2016, continues, while the growth of the world economy for 2018-2019 is projected to remain at the 2017 level.

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Noting that growth in the United States, buoyed by a procyclical fiscal package, continues at a robust pace and is driving USA interest rates higher, Mr. Obstfeld said U.S. growth will decline once parts of its fiscal stimulus go into reverse.

USA stimulus also adds to the "already-unsustainable" debt and deficit that will undercut future growth, the report warns. It explained that its downgrades to global growth also reflect predictions of a slower expansion in the eurozone, as well as turbulence in a number of emerging market economies such as Argentina, Turkey, and Venezuela.

For the United Kingdom, it recommended interest rates by raise to tackle inflation, but urged the Bank of England to remain "flexible".

"The possible failure of Brexit negotiations poses another risk".

"An increase in trade barriers would disrupt global supply chains, which have become an integral part of production processes in the past decades, and slow the spread of new technologies, ultimately lowering global productivity and welfare". "This is not true in emerging and developing economies, where financial conditions have tightened markedly over the past six months", he said.

Obstfeld said the International Monetary Fund does not see a generalized pullback from emerging markets, nor contagion that will spill over to those emerging economies which have stronger economies and have thus far avoided major outflows, such as those in Asia and some oil exporting countries.

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