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Abu Dhabi, UAEThursday 15 November 2018

IMF maintains global growth forecasts but warns of trade war troubles

The Washington-based fund kept its 3.9% global expansion forecast for this year and next

Chinese made children shoes carrying a Chinese map and US flags are on display for a sale at a shop in Beijing. The IMF has warned that downside risks to global growth "have become more salient, most notably the possibilities of escalating and sustained trade actions." AP Photo
Chinese made children shoes carrying a Chinese map and US flags are on display for a sale at a shop in Beijing. The IMF has warned that downside risks to global growth "have become more salient, most notably the possibilities of escalating and sustained trade actions." AP Photo

The International Monetary Fund has maintained its global growth projections for this year and next at 3.9 per cent, but warned that the economic expansion is becoming uneven and less synchronised as escalating trade wars cloud future outlook.

The fund, in its latest update of the World Economic Outlook published on Monday, said growth in the US will remain on the same trajectory but will taper in some of the other economies, including those in the euro area.

“The rate of expansion appears to have peaked in some major economies and growth has become less synchronised,” the fund said. “Growth projections have been revised down for the euro area, Japan, and the United Kingdom, reflecting negative surprises to activity in early 2018.”

The global economic growth has come under pressure by escalating trade war, particularly, between the world's two largest economies - the US and China. Both have slapped import tariffs on a goods ranging from soybean to solar panels in a tit-for-tat trade dispute. The US has also imposed tariffs on steel and aluminium imports, further ruffling its major trade partners in the EU and North America.

In its push to re-craft bilateral deals, the US is renegotiating the Nafta trade agreement with Mexico and Canada, while the UK’s bid to clinch a better post-Brexit trade deal has hit several hurdles, casting further shadow on global trade commerce prospects.

“The possibility for more buoyant growth than forecast has faded somewhat in light of the weak out turns in the first quarter in several large economies, the moderation in high-frequency economic indicators, and tighter financial conditions in some vulnerable economies,” the IMF said. “Downside risks, on the other hand, have become more salient, most notably the possibilities of escalating and sustained trade actions, and of tighter global financial conditions.”

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In advanced economies, growth is projected to reach 2.4 per cent in 2018, 0.1 percentage point lower than the April forecast, “largely reflecting greater-than-expected growth moderations in the euro area and Japan after several quarters of above-potential growth”.

The fund maintained its forecast for US growth of 2.9 per cent in 2018 and 2.7 per cent in 2019, thanks to fiscal stimulus and robust private final demand. Growth in the euro area will reach 2.2 per cent this year and 1.9 per cent in 2019, lower than the IMF's previous forecasts. Japan’s economy will expand only 1 per cent in 2018 due to a contraction in the first quarter, the fund noted.

“With reduced slack and downside risks mounting, many countries need to rebuild fiscal buffers to create policy space for the next downturn and strengthen financial resilience to an environment of possibly higher market volatility,” the IMF said.

In emerging markets, growth has become even more disparate, with rising oil prices, higher US interest rates, a stronger dollar and trade and geopolitical tensions weighing on several vulnerable economies.

“Tighter financial conditions could potentially cause disruptive portfolio adjustments, sharp exchange rate movements, and further reductions in capital inflows to emerging markets, particularly those with weaker fundamentals or higher political risks,” the fund said.

The IMF’s projections come as the Chinese economy decelerated in line with expectations to 6.7 per cent in the second quarter at the slowest pace since 2016, official government figures showed on Monday. Growth moderated from 6.8 per cent in the previous quarter.

Thanks to higher oil prices, economic growth in the Middle East, North Africa, Afghanistan and Pakistan will rise to 3.5 per cent and 3.9 per cent this year and next respectively, higher than the April projections, the fund said in the update.

Economic growth in Saudi Arabia, the world’s biggest oil exporter, will reach 1.9 per cent in 2018 and 2019, the IMF added. The 2018 projection is 0.2 percentage points higher than the April forecast.