IMF warns escalating trade war most likely

THE INTERNATIONAL Monetary Fund warned yesterday that escalating and sustained trade conflicts are increasingly likely, threatening to derail economic recovery and depress medium-term growth prospects.

The IMF, in an update to its World Economic Outlook growth forecasts, said the US, as the focus of retaliatory tariffs from trading partners, was especially vulnerable to a slowdown in its exports.

An escalation of tariffs to levels threatened by the US, China and other countries would not only have a direct effect on demand, but would heighten uncertainty and hurt investment, the IMF said.

“Our modelling suggests that if current trade policy threats are realised and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020,” IMF chief economist Maury Obstfeld said in a statement.

“As the focus of global retaliation, the US finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable,” Obstfeld added.

The IMF left unchanged its global growth forecasts at 3.9 percent for both 2018 and 2019, compared to its previous forecast issued in April.

Forecasts for the US and China were both unchanged, with US growth pegged at 2.9 percent in 2018 and 2.7 percent in 2019. China’s growth was forecast at 6.6 percent in 2018 and 6.4 percent in 2019.

But the fund cut its 2018 growth forecasts for eurozone countries, Japan and Britain, citing a softer than expected first quarter performance coupled with tighter financial conditions, partly due to political uncertainty.

The eurozone’s 2018 growth forecast was cut to 2.2 percent from 2.4 percent, with Britain cut to 1.4 percent from 1.6 percent. Japan’s growth projection was cut to 1 percent from 1.2 percent. The IMF also trimmed 2018 forecasts for some emerging market countries, notably a half percentage point cut for Brazil to 1.8 percent, due to the lingering effects of labour strikes and political uncertainty.

The fund also cut India’s growth rate by a tenth of a point to 7.5 percent, due to the negative effects of higher oil prices on domestic demand and faster-than-anticipated monetary policy tightening due to higher inflation.

The IMF revised slightly upward 2018 forecasts for Saudi Arabia and several Commonwealth of Independent States countries other than Russia.