International Monetary Fund lowers SA's economic growth forecasts

Marco Green
October 9, 2018

"India's growth is expected to increase to 7.3 per cent in 2018 and to 7.4 per cent in 2019 (slightly lower than in the April 2018 World Economic Outlook (WEO) for 2019, given the recent increase in oil prices and the tightening of global financial conditions), up from 6.7 per cent in 2017", the International Monetary Fund said in its latest World Economic Outlook report.

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 normalise, hurting emerging markets further at a time when US-led demand growth will start to slow as some tax cuts expire.

Still, the trade disputes sparked by President Donald Trump that have led to tit-for-tat exchanges of tariffs among major trading partners are affecting China, other Asian economies and more vulnerable countries like Argentina and Turkey, along with Brazil.

A massive effort was demanded by global leaders if the multilateral world order, as exemplified institutions such as the World Trade Organisation, was to survive, warned Mr Obstfeld.

And if it continues, the "escalation of trade tensions to an intensity that carries systemic risk is a distinct possibility without policy cooperation". For next year, trade is seen growing just four percent, a half point less than the prior forecast.

"Notwithstanding the present demand momentum, we have downgraded our 2019 United States growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China's retaliation".

They show that a burst of strong growth, fueled partly by United States tax cuts and rising demand for imports, was starting to wane.

And it stressed "cooperative solutions" to help boost continued growth in trade "remain essential to preserve and extend the global expansion".

The IMF has been recommending that Chinese authorities de-emphasize the quantity of growth to focus more on its quality and sustainability to allow the economy to better withstand shocks, Obstfeld said.

"US growth will decline once parts of its fiscal stimulus go into reverse", International Monetary Fund chief economist Maurice Obstfeld said in a statement.

Considering developments since then, however, that number appears over-optimistic: "rather than rising, growth has plateaued at 3.7 per cent", IMF Chief Economist Maurice Obstfeld said as the world body released the World Economic Outlook, its annual flagship report.

Medium term growth could drop below 1.4 percent. It predicted China's GDP growth at 6.6% in 2018-'19 and downgraded it to 6.2% for 2019-'20.

However, stimulus measures by Beijing are likely to soften the impact of the tariffs.

Noting that growth in the United States, buoyed by a procyclical fiscal package, continues at a robust pace and is driving USA interest rates higher, Obstfeld said U.S. growth will decline once parts of its fiscal stimulus go into reverse.

Other reports by Click Lancashire

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