IMF cuts forecast for global growth as trade war takes its toll

Pauline Gross
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 warning comes as finance ministers and central bankers from the IMF's 189 member nations prepare to meet this week in Bali, Indonesia for the annual meetings of the fund and its sister institution, the World Bank.

Reflecting such sentiments, growth in trade of goods and services across the world was revised down 0.6 point from the July forecast to 4.2 percent in 2018 and 0.5 point to 4.0 percent in 2019, according to the report.

When the world's two biggest economies are "at odds", Obstfeld said, that is going to create "a situation where everyone is going to suffer".

In the US, the core personal consumption expenditure index, the Fed's preferred measure for inflation, will rise to 2.1 per cent in 2018 and 2.3 per cent next year, as the government's fiscal stimulus pushes growth above potential, the International Monetary Fund said.

Growth in both the United States and China were expected to slow next year as a result of the trade dispute triggered by US President Donald Trump. It predicted China's GDP growth at 6.6% in 2018-'19 and downgraded it to 6.2% for 2019-'20.

Germany, the economic powerhouse of Europe, could be particularly hard hit by a drop in manufacturing orders and trade volumes.

The IMF expects SA's economy to expand by 1.4% in 2019, down from its April projection of 1.7%.

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The IMF chief economist said emerging economies were coping better than the developed ones, but their susceptibility to large global shocks has risen.

South Africa, only 0.8 percent this year.

Trade tensions are expected to continue although Fund officials view U.S. -Mexico-Canada trade agreement as a positive sign.

After a visit last week, the IMF issued a report saying Pakistan is facing significant economic challenges, with declining growth, high fiscal and current account deficits, and low levels of worldwide reserves. Bond markets were closed, leading US indexes to a mixed finish after a day of light trading.

"Where we are now is we've gotten some bad news".

The UK economy, meanwhile, is expected to grow 1.4 percent this year and 1.5 percent in 2019 - falling behind nearly all of Europe, with the exception of heavily-indebted Italy.

The model also includes the effects of a reduction in business confidence that reduces investment and leads to a tightening of financial conditions.

Adjustments would occur as domestic production displaces higher-priced imports, the model shows, but in the long run, the US GDP would still be 1% below a baseline without these tariffs, while China's GDP output would be 0.5% below the baseline.

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