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| A cargo ship at an industrial port in Tokyo. REUTERS/file photo |
The International Monetary Fund
on Tuesday cut its global economic growth forecasts for 2018 and 2019, saying
that trade policy tensions and the imposition of import tariffs were taking a
toll on commerce while emerging markets struggle with tighter financial
conditions and capital outflows.
The new forecasts, released on
the Indonesian resort island of Bali where the IMF and World Bank annual meetings are
getting underway, show that a burst of strong growth, fueled partly by U.S.
The IMF said in an update to its
World Economic Outlook it was now predicting 3.7 percent global growth in both 2018
and 2019, down from its July forecast of 3.9 percent growth for both years.
The downgrade reflects a
confluence of factors, including the introduction of import tariffs between the
United States and China, weaker performances by eurozone countries, Japan and
Britain, and rising interest rates that are pressuring some emerging markets
with capital outflows, notably Argentina, Brazil, Turkey and South Africa.
"U.S. U.S.
growth forecast owing to the recently enacted tariffs on a wide range of
imports from China and China
With much of the U.S.-China
tariff war's impact to be felt next year, the Fund cut its 2019 U.S. growth forecast to 2.5 percent from 2.7
percent previously, while it cut China United States
and 6.6 percent for China
The eurozone's 2018 growth
forecast was cut to 2.0 percent from 2.2 percent previously, with Germany
Obstfeld said the IMF 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.
"But there is no denying
that the susceptibility to large global shocks has risen," Obstfeld said.
"Any sharp reversal for emerging markets would pose a significant threat
to advanced economies."
Some energy-rich emerging market
countries have fared better due to higher oil prices, with Saudi Arabia and Russia
The IMF said the balance of risks
was now tilted to the downside, with a higher likelihood that financial
conditions will tighten further as interest rates normalize, hurting emerging
markets further at a time when U.S.-led demand growth will start to slow as
some tax cuts expire.
Trade tensions are expected to
continue although Fund officials view U.S.-Mexico-Canada trade agreement as a
positive sign.
"Where we are now is we’ve
gotten some bad news. Our probability that we would attach to further bad news
has gone up," Obstfeld said.
TRADE WAR RISKS
In a new simulation exercise to
show trade war risks to the global economy, the IMF modeled the effect of an
all-out U.S.-China trade war, coupled with threatened global U.S.
It found that global GDP output
under this scenario would fall by more than 0.8 percent in 2020 and remain
roughly 0.4 percent lower in the long-term compared to levels without these
effects, which "inflict significant costs to the global economy, especially
through its impact on confidence and financial conditions."
The effects on the United States and China
would be particularly severe, with 2019 GDP losses of more than 0.9 percent in
the United States and 1.6
percent in China
The exercise assumes that U.S. President
Donald Trump imposes tariffs on the remaining $267 billion worth of Chinese
goods imports not already under punitive tariffs and China
Adjustments would occur as
domestic production displaces higher-priced imports, the model shows, but in
the long run, the U.S. GDP would still be 1.0 percent below a baseline without
these tariffs, while China
Source: Reuters
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