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

Marco Green
October 10, 2018

"While Nigeria will grow from 1.9 per cent in 2018 to 2.3 percent in 2019, South Africa and Angola are projected to move from 0.8 to 1.4 and -0.1 to 3.1 per cents respectively". It was the first downgrade since July 2016. So, what you do see is that emerging market economies, which is where India is, there's a very fast buildup in private debt with a slowdown in the last two years, But India is basically steady.

China was set to grow by 6.2 in 2019, down from the 6.4 percent projected last July.

"There are clouds on the horizon". This is still lower than the global economic growth of 3.7 percent.

Unveiling the World Economic Outlook titled, "Challenges to Steady Growth", at the ongoing yearly meeting of the IMF/World Bank Group, in Bali, Indonesia.

'To gauge the severity of the threats to growth, one must ask how governments could respond if risks are realised and widespread recession ensues. However, the RBI pegged India's growth projections at 7.5 per cent.

A severe recession would slash United States public wealth by about $5 trillion, causing vastly more damage to Washington's finances than just an increase in debt and deficits, the International Monetary Fund warned Tuesday.

The IMF's cut to its outlook was broad-based.

Based on the trade tariffs already in place, the organisation revised down its estimates of world growth this year and next by 0.2 of a percentage point to a still healthy 3.7 per cent.

Pakistan's current account deficit widened 43 per cent to $18 billion in the fiscal year that ended June 30, while the fiscal deficit has ballooned to 6.6 per cent of gross domestic product.

But it predicts that US growth will slow to 2.5 per cent next year as the effect of recent tax cuts wears off and as US President Donald Trump's trade war with China takes a toll.

Released in Bali during the annual meeting of the International Monetary Fund and the World Bank, the IMF's flagship World Economic Outlook said its 2019 growth projection for China is lower than in April, given the latest round of United States tariffs on Chinese imports, as are its projections for India.

The People's Bank of China announced on Sunday that it would add more liquidity to the economy by cutting the amount of cash that banks must hold as reserves at the central bank. Dow futures lost 0.5 per cent and the S&P 500 futures were down 0.6 per cent.

Several emerging markets had their forecasts cut, including Argentina, Brazil, Iran and Turkey, reflecting factors including tighter credit.

The rupiah has indeed been under strong downward pressure, especially over the last three months, as a result of monetary tightening and stronger economic growth in the USA, which has caused higher capital outflows, and the upward trend in global oil prices, which has increased Indonesia's trade deficit and consequently the current account deficit to more than 2.5 percent of gross domestic product (GDP).

Core inflation, which excludes volatile items such as energy, will vary from country to country, it added.

The IMF's projection is close to the World Bank's forecast of 7 percent for fiscal 2018-19, released on Oct 2.

The IMF as usual urged emerging economies to accelerate structural reform measures to strengthen their economic fundamentals in the long term.

"Broadly speaking, we see signs of lower investment and manufacturing, coupled with weaker trade growth", Dr Obstfeld said.

Other reports by Click Lancashire

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