The IMF has cut its global economic growth forecasts for 2018 and 2019, saying that the US-China trade war was taking a toll and emerging markets were struggling with tighter liquidity and capital outflows.
The new forecasts show a burst of strong growth, fueled partly by US tax cuts and rising demand for imports, was starting to wane.
The IMF said in an update to its World Economic Outlook it was now predicting 3.7% global growth in both 2018 and 2019, down from its July forecast of 3.9% growth for both years.
The downgrade reflects a confluence of factors, including the introduction of import tariffs between the US and China, weaker performances by eurozone countries, Britain and Japan, and rising interest rates that are pressuring some emerging markets with capital outflows, notably Argentina, Brazil, Turkey, South Africa, Indonesia and Mexico.
“US growth will decline once parts of its fiscal stimulus go into reverse,” IMF chief economist Maurice Obstfeld said. “Notwithstanding the present demand momentum, we have downgraded our 2019 US growth forecast owing to the recently enacted tariffs on a range of imports from China and China’s retaliation.”
With much of the US-China tariff war’s impact to be felt next year, the Fund cut its 2019 US growth forecast to 2.5% from 2.7% previously, while it cut China’s 2019 growth forecast to 6.2% from 6.4%. It left 2018 growth forecasts for the two countries unchanged at 2.9% for the US and 6.6% for China.
Mr Obstfeld said he was not concerned about the Chinese government’s ability to defend its currency against further weakening but told a news conference that Beijing would face a “balancing act” between actions to shore up growth and ensuring financial stability.
If China and the US were to resolve their trade differences, it “would be a significant upside to the forecast”. The eurozone’s 2018 growth forecast was cut to 2% from 2.2% previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.
Trade tensions are expected to continue although IMF officials view the US-Mexico-Canada trade agreement as a positive sign.
The IMF does not see a generalised pullback from emerging markets, nor contagion that will spill over to those emerging economies which have stronger economies.