IMF cuts forecast for global growth as trade war takes toll

WASHINGTON: The International Monetary Fund (IMF) said the world economy is plateauing as the lender cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.

On the eve of its annual meetings in Bali, the fund projected a global expansion of 3.7% this year and next, down from the 3.9% projected three months ago. It was the first downgrade since July 2016.

While the global economy is still on track to match last year’s pace, which was the strongest since 2011, the new outlook suggests fatigue is setting in and the overall performance masked divergence with mounting weakness in emerging markets from Brazil to Turkey.

The fund left its 2018 US forecast unchanged but cut its expectation for next year, citing the impact of the trade conflict.

Risks to the global outlook have risen in the last three months and tilt to the downside, the IMF said.

Threats include a further inflaming of the trade war between the US and countries including China, and a sharper-than-expected rise in interest rates, which would accelerate capital flight from emerging markets.

“There are clouds on the horizon. Growth has proven to be less balanced than we had hoped,” IMF chief economist Maurice Obstfeld told reporters in Bail yesterday.

“Not only have some downside risks we identified in the last WEO been realised, the likelihood of further negative shocks to our growth forecast has risen.”

The IMF’s cut to its outlook was broadbased. The fund downgraded its forecast for US growth next year to 2.5%, down 0.2 percentage point from July.

The IMF also cut its outlook for China as a result of the tariffs, shaving its projection for growth next year to 6.2%, down 0.2 point from three months ago.

The eurozone will expand 2% this year, down 0.2 point from July, as a result of weaker than expected growth in the first half of the year.

The fund upgraded its forecast for Japan slightly to 1.1% growth this year, up 0.1 point from July.

Several emerging markets had their forecasts cut, including Argentina, Brazil, Iran and Turkey, reflecting factors including tighter credit.