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

Daniel Fowler
October 12, 2018

A similar warning was also conveyed by the IMF "Global Financial Stability Report" released last week, pointing out that the tightening United States' monetary policy, coupled with trade uncertainties, have discouraged capital inflows to emerging economies, weakened their currencies and depressed equity markets.

According to the Bretton Woods institution's latest World Economic Outlook Report on World Economy and Financial Surveys, the economic growth will however be higher at 7.6 per cent GDP in 2019 but will gradually dip to about 5.1 per cent GDP by 2023.

The fund cut its 2019 USA growth forecast from 2.7 per cent to 2.5 per cent, and the China growth forecast from 6.4 per cent to 6.2 per cent. The global crisis lender, which in Indonesia this week is staging its annual meetings with the World Bank, cut its outlook for global GDP on Monday by two tenths to 3.7 per cent through next year.

"Owing to these changes, our global growth projections for both this year and next are downgraded to 3.7 per cent, 0.2 percentage point below our last assessments and the same rate achieved in 2017", the report said.

Tensions have soared in recent months with US President Donald Trump's administration rolling out billions of US dollars in tariffs against China in a bid to tackle its trade deficit and rein in what Washington views as unacceptable trade practices by the Asian giant.

Earlier in the day, Lembong said the US stock-market sell-off was good for emerging economies as it means the USA will be less of a draw for capital and it lessens the need for the Federal Reserve to raise interest rates.

If the trade war continues, it could take a significant bite out of global growth, according to the fund.

The UAE's economy which grew 0.8 per cent previous year, will expand 2.9 and 3.7 per cent in 2018 and 2019.

The eurozone's 2018 growth forecast was cut to 2.0 percent from 2.2 percent previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes.

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In its report the International Monetary Fund said the tit-for-tat tariffs imposed by the United States and China, weaker performances by eurozone countries, Japan and Britain all conspired to increase pressure on the global economy, while "the possible failure of Brexit negotiations poses another risk".

Elsewhere, the IMF said a key risk to financial conditions was if the Federal Reserve tightened monetary policy faster than market expectations.

These included easing planning restrictions to boost housing supply, improve the quality of transport infrastructure and facilitating the relocation of workers likely to be affected by trade barriers created by Brexit.

It also said Ghana's current account position will however remain negative though lower than before.

A bull run has taken US equities to record highs this year.

Over the longer term the impact to the USA economy will be almost one percentage point, while to China it will be half that.

The IMF said a high interest burden and risks from rising yields in India also require continued focus on debt reduction to establish policy credibility and build buffers.

Pakistan is also seeking fresh loans from China, which has already heavily invested in transport and energy, as well as Saudi Arabia.

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