NUSA DUA, Indonesia - The International Monetary Fund (IMF) 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 downgrade reflects a confluence of factors, including US & China tariffs, weaker performances by eurozone countries, Japan and Britain, and rising interest rates pressuring some emerging markets
The new forecasts, released on the Indonesian resort island of Bali
where the IMF and World Bank annual meetings are getting under way, show that a
burst of strong growth, fueled partly by US tax cuts and rising demand for
imports, was starting to wane.
READ MORE: IMF chief: Trade conflict poses risk to developing world
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.
"US growth will decline once parts of its fiscal stimulus go into
reverse," IMF chief economist Maurice Obstfeld said in a statement.
"Notwithstanding the present demand momentum, we have downgraded our 2019 US growth forecast owing to the recently enacted tariffs on a wide range of imports
from China and China’s retaliation."
With much of the US-China trade conflict's impact to be felt next year, the Fund cut its 2019 US growth forecast to 2.5 percent from 2.7 percent previously, while it cut China's 2019 growth forecast to 6.2 percent from 6.4 percent. It left 2018 growth forecasts for the two countries unchanged at 2.9 percent for the 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 particularly hard hit by a drop in manufacturing
orders and trade volumes.
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 foremerging markets would pose a
significant threat to advanced economies."
Brazil will see a 0.4 percentage-point drop in GDP growth to1.4
percent for 2018 as a nationwide truckers strike paralyzed much of the economy.
Iran, facing a new round of US sanctions next month, also saw its growth
forecast cut, the IMF said.
Some energy-rich emerging market countries have fared better due to
higher oil prices, with Saudi Arabia and Russia seeing forecast upgrades.
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 US-led demand
growth will start to slow as some tax cuts expire.
Trade tensions are expected to continue although Fund officials view
US-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.
ALSO READ: IMF chief economist says US tariffs won't reduce trade deficit
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