The International Monetary Fund has cut its global growth forecasts as trade tensions between the U.S. and trading partners have started to hit economic activity worldwide.
With trade growth set to slow sharply amid a trade war between the United States and China, the IMF cut its outlook for global GDP by two-tenths to 3.7 percent for 2018 and 2019, according to the quarterly World Economic Outlook Report issued Monday.
The revised estimates includes a worsening outlook for developing economies this year and next compared to the July report, as well as downgrades for the US and China in 2019.
The report — published twice a year in April and October — is widely read by both public and private sectors globally for the IMF’s assessment of the world economy. The latest edition was released as thousands of finance officials and professionals gather in Bali, Indonesia, for the IMF and World Bank annual meetings.
Earlier projections now appear to be “over-optimistic” given that risks from “further disruptions in trade policies” have become more prominent, said Maurice Obstfeld, IMF chief economist, in a prepared speech.
“Two major regional trade arrangements are in flux — NAFTA (where a new trilateral agreement awaits legislative approval) and the European Union (with the latter negotiating the terms of Brexit). U.S. tariffs on China, and more broadly on auto and auto part imports, may disrupt established supply chains, especially if met by retaliation,” he said.
The IMF warns that risks highlighted in previous reports “have become more pronounced or have partially materialized” in the real world.
The dominant US economy has been shielded from the ill effects so far due to the stimulus provided through tax cuts and spending policies but that will wear off by 2020.
Still, the trade disputes sparked by President Donald Trump that have led to tit-for-tat exchanges of tariffs among major trading partners are affecting China, other Asian economies and more vulnerable countries like Argentina and Turkey, along with Brazil.
Growth estimates for the euro area and Britain also was revised down. The report warned that growth “may have peaked in some major economies.”
Global trade is projected to expand by 4.2 percent this year, six tenths less than expected in July and nearly a full point lower than the forecast in April. For next year, trade is seen growing just four percent, a half point less than the prior forecast.
The IMF outlook already projects global growth will slow to 3.6 percent during 2022 – 2023. However, the IMF cautions that it has a “poor track record of predicting recessions.”
The fund urged governments to focus on policies that can share the benefits of growth more widely, helping counter the growing mistrust of institutions, and to avoid “protectionist reactions to structural change.” And it stressed “cooperative solutions” to help boost continued growth in trade “remain essential to preserve and extend the global expansion.”