International Monetary Fund downgrades outlook for U.S., China as result of trade war

Pakistan       by Usman Arshad | Published

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.

IMF's forecast for Singapore's economic outlook remains steady at 2.9% for 2018, but has been revised downward by 0.2 percentage points to 2.5% for the following year.

The trade confrontation weighs on China in particular, where growth is projected to slow to 6.6 percent this year and 6.2 per cent in 2019, a downgrade of 0.2 points.

The IMF predicted United Kingdom growth to would be 1.4% in 2018, rising to 1.5% in 2019, while the eurozone 2018 growth forecast was cut to 2.0% from 2.2%.

Finance ministers and central bankers from numerous IMF's 189 member nations are meeting in Bali this week with talk of rising protectionism taking centre stage.

There's a 5 percent probability that emerging markets other than China could face debt-market outflows of at least $100 billion, on par with the capital flight during the financial crisis, the International Monetary Fund said.

When the world's two biggest economies are "at odds", Obstfeld said, that is going to create "a situation where everyone is going to suffer".

"In the United States, momentum is still strong as fiscal stimulus continues to increase, but the forecast for 2019 has been revised down due to recently announced trade measures, including the tariffs imposed on $200 billion of US imports from China", IMF report said.

The report also takes stock of global regulatory reform 10 years after the global financial crisis.

The new forecasts, released on the Indonesian resort island of Bali where the International Monetary Fund and World Bank annual meetings are getting underway, show that a burst of strong growth, fueled partly by US tax cuts and rising demand for imports, was starting to wane.

It said that the composition of spending and revenues should be growth friendly and protect the most vulnerable.

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

The State Bank of Pakistan said it believes "this adjustment in the exchange rate, along with lagged impact of recent hikes in [interest rates] and other policy measures to contain imports will correct the imbalances in the external account".

"Thereafter, global growth is projected to slow to 3.6 percent by 2022-23, largely reflecting a moderation in advanced economy growth toward the potential of that group", it added.

Short-term risks to global financial stability have increased "modestly", the Washington-based lender said.

"Since mid-April, rising USA interest rates and a stronger United States dollar - coupled with intensified trade tensions - have triggered a reversal in portfolio flows, an increase in borrowing costs, and a weakening in local currencies in some emerging markets", the report noted.

USA stimulus also adds to the "already-unsustainable" debt and deficit that will undercut future growth, the report warns.

It sees the unemployment rate dropping to 3.9 percent in 2018 and to 3.5 percent in 2019.

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