Ongoing trade tensions between the US and China are likely to hit global growth in 2018 and 2019 – this is according to the latest world economic outlook from the International Monetary Fund, published twice yearly.
The IMF is now predicting 3.7 per cent growth in 2018 and 2019, down from its forecast earlier this year of 3.9 per cent growth.
While there are a number of factors cited behind this reduced forecast – weaker performances from EU countries, Japan and Britain, and rising interest rates putting pressure on some emerging markets including Argentina, Brazil and Turkey – the IMF makes it clear that the escalation of President Donald Trump’s protectionist policies are likely to have the biggest impact.
“US growth will decline once parts of its fiscal stimulus go into reverse,” said IMF chief economist Maurice Obstfeld. “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.”
The world’s biggest economies, including the US, France, Germany and China, are likely to be the hardest hit. Britain is also expected to see slower growth, suffering as it is from the double impact of the US-China trade war and the continued uncertainty around Brexit terms.
The IMF cut its 2019 US growth forecast to 2.5 per cent from 2.7 per cent previously, while it cut China’s 2019 growth forecast to 6.2 per cent from 6.4 per cent. It left 2018 growth forecasts for the two countries unchanged at 2.9 per cent for the United States and 6.6 per cent for China. The eurozone’s 2018 growth forecast was cut to 2.0 per cent from 2.2 per cent previously, with Germany especially hard hit by a drop in manufacturing orders and trade volumes.
In a blog before the report’s publication, Maurice Obstfeld also called on governments to reject calls to boost growth with debt-fuelled spending.
He said: “The likelihood of further negative shocks to our growth forecast has risen. In several key economies, moreover, growth is being supported by policies that seem unsustainable over the long term.”