China trade war and Brexit threaten global growth says International Monetary Fund

Ivan Schwartz
October 10, 2018

Growth is expected to "remain strong elsewhere in emerging and developing Asia", the International Monetary Fund said, forecasting Indian growth to increase to 7.3 percent in 2018 and 7.4 percent in 2019.

The IMF-World Bank meeting is an annual summit to discuss global financial and economic issues, including global economic outlook, poverty eradication, and aid effectiveness. "Risks to global growth skew to the downside in a context of elevated policy uncertainty", said the International Monetary Fund.

"The oil market mood is exceptionally bullish, with fears growing that the USA demands for an Iran oil embargo could cause a significant supply shortfall", said Julius Baer commodities research analyst Carsten Menke.

"Any sharp reversal for emerging markets would pose a significant threat to advanced economies".

Also on Tuesday, it projected that inflation in Nigeria would increase to 13.5 per cent next year. It left 2018 growth forecasts for the two countries unchanged at 2.9 percent for the USA and 6.6 percent for China. It predicted China's GDP growth at 6.6% in 2018-'19 and downgraded it to 6.2% for 2019-'20.

"In Nigeria, inflation is projected to fall to 12.4 per cent in 2018 from 16.5 per cent in 2017, and to rise to 13.5 per cent in 2019". It now expects the global economy to only expand by 3.7% in 2018 and 2019, down from 3.9% before. It also listed risks such as higher oil prices, global trade tension and the impact of higher USA interest rates and volatile capital flows on borrowing costs over the short term.

The trade deficit has gone up 8.6 percent this year to $31 billion. German growth was revised down to 1.9 percent in both 2018 and 2019 due to a slowdown in exports and industrial production.

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Following the announcement in September that SA had fallen into a recession, a number of organisations have reduced the country's growth projections. Emerging Asia includes ASEAN 5 countries plus China and India.

The IMF said the Iranian economy was now expected to contract over the next two years "on account of reduced oil production, before returning to modest positive growth in 2020-23".

The move, it pointed out, was synchronous with that of the central banks of India, Indonesia and Mexico. The contract lost 0.1 percent to settle at $74.29 per barrel in NY.

Both of those figures would mark the slowest rate of expansion for China since 1990, when growth shuddered in the aftermath of the violent suppression of massive Tiananmen Square pro-democracy demonstrations the previous year.

The region's slower growth next year mirrors the global growth's similar softening over the medium term.

"Notwithstanding the present demand momentum, we have downgraded our 2019 USA growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China's retaliation". The Outlook said the global economy is expected to grow at 3.7 percent this year and next year - down 0.2 percentage points from an earlier forecast, as the trade war started to hit economic activity worldwide. "It's definitely going to be a balancing act for them". "Inclusive fiscal policies, educational investments, and ensuring access to adequate health care can reduce inequality and are key priorities", he added.

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