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

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

The ongoing trade war between the USA and China could start having material effects on the economies of both countries within the coming years, according to new projections from the International Monetary Fund (IMF).

The IMF on Tuesday cut its global GDP growth forecast by 0.2 percentage points to 3.7 percent for both 2018 and 2019, citing the economic uncertainties.

The fund cut its 2019 United States growth forecast from 2.7 per cent to 2.5 per cent, and the China growth forecast from 6.4 per cent to 6.2 per cent.

IMF Managing Director Christine Lagarde confirmed that Pakistan had requested the loans after meeting with Finance Minister Asad Umar in Indonesia, without saying how much the Pakistanis had asked for.

The Chinese central bank will focus on the domestic economy when making adjustments to its monetary policy, Yi also said, indicating that the PBOC's decision-making will be influenced less than before by changes in the external environment such as recent interest rate hikes by the U.S. Federal Reserve. But it predicts that US growth will slow to 2.5 per cent next year as the effect of recent tax cuts wears off and as US President Donald Trump's trade war with China takes a toll.

The fund kept its forecast for growth in the Chinese economy unchanged at 6.6 percent this year.

New IMF research shows emerging market countries excluding China could face debt portfolio outflows of up to $100 billion, a level last seen during the global financial crisis.

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At the worst, which includes Trump pushing through with tariffs on all Chinese goods and on imports of cars and auto parts that spark a round of reprisals, as well as denting confidence and provoking a negative market reaction, the impact would be less than one percentage point on global growth.

The cut its 2019 USA growth forecast to 2.5 percent from 2.7 percent previously, while it reduced China's 2019 growth forecast to 6.2 percent from 6.4 percent.

In its report the International Monetary Fund said the tit-for-tat tariffs imposed by the U.S. and China, weaker performances by eurozone countries, Japan and Britain all conspired to increase pressure on the global economy, while "the possible failure of Brexit negotiations poses another risk".

"If you have the world's two largest economies at odds, that is a situation in which everyone, everyone is going to suffer", International Monetary Fund chief economist Maurice Obstfeld said Tuesday. Global growth will slow to 3.6 per cent by 2022-2023, as growth in rich nations falls back to potential, it said. These risks, it says, while still moderate, could increase significantly.

The revised estimates includes a worsening outlook for developing economies this year and next compared to the July report, as well as downgrades for the U.S. and China in 2019.

The IMF as usual urged emerging economies to accelerate structural reform measures to strengthen their economic fundamentals in the long term.

China has responded in kind with its own barrage of levies, rattling nerves especially among other Asian economies and already vulnerable countries like Argentina, Turkey and Brazil.

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