IMF cuts world economic growth forecasts as import tariffs bite
Downgrades reflect effects of trade tensions and US-China tariff war
BALI The International Monetary Fund (IMF) yesterday cut its global economic growth forecasts for this year and next year, 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 Bali where the IMF and World Bank annual meetings are getting underway, show that a burst of strong growth, fuelled partly by US tax cuts and rising demand for imports, was starting to wane.
The IMF said in an update to its World Economic Outlook that it was now predicting 3.7 per cent global growth in both this year and next year, down from its July forecast of 3.9 per cent growth for both years.
The downgrade reflects a confluence of factors, including the introduction of import tariffs between the US 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 next year's 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 tariff war's impact to be felt next year, the Fund cut its next year's US growth forecast to 2.5 per cent from 2.7 per cent previously.
It cut China's next year's growth forecast to 6.2 per cent from 6.4 per cent. It left this year's growth forecasts unchanged at 2.9 per cent for the US and 6.6 per cent for China.
The eurozone's this year's growth forecast was cut to 2.0 per cent from 2.2 per cent previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.
Mr Obstfeld said the IMF does not see a generalised 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," Mr Obstfeld said. "Any sharp reversal for emerging markets would pose a significant threat to advanced economies."
Brazil will see a 0.4 percentage-point drop in GDP growth to 1.4 per cent for this year as a nationwide truckers strike paralysed 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.- REUTERS
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