International Monetary Fund downgrades outlook for U.S., China as result of trade war

11 October, 2018, 15:38 | Author: Billie Castillo
  • Maurice Obstfeld Economic Counsellor and Director of IMF talks as Wafa Amr Communication Officer of IMF listens during their press

Khan's decision came after the Pakistani stock markets tumbled by 3.4 percent on Monday after Khan said the day before that he was still exploring options outside the International Monetary Fund. The report said that aggregate growth in the emerging market and developing economy group stabilised in the first half of 2018.

The World Bank last week cut SA's GDP growth estimate for 2018 to 1% this year from 1.4%, while the SA Reserve Bank slashed its forecast to 0.7% from 1.2% in September.

"Nonetheless, despite trade tensions and continued monetary policy normalisation in a few advanced economies, global financial markets have remained buoyant and appear complacent about the risk of a sudden, sharp tightening in financial conditions".

In a report released on Tuesday, the International Monetary Fund estimated that despite positive policy tailwinds in the US economy resulting from things like tax reform, growth will be less than previously expected next year, as a result of the trade war.

The IMF said it was now predicting 3.7 percent global growth in both 2018 and 2019, down from its July forecast of 3.9 percent growth for both years.

But the gyrations that rocked Wall Street the day before and Asia and Europe on Thursday, taking the Shanghai Composite index down 5.2 per cent and Japan's Nikkei 225 almost 4 per cent, do partly reflect rising interest rates in the USA and some other countries and growing uncertainty over trade, she said.

The IMF in its World Economic Outlook 2018 noted that "Nigeria's projected economic growth in the sub-Sahara Africa from 3.1 percent this year to 3.8 percent in 2019 is not enough to create the needed jobs for the growing population of the region".

China promises not to weaken yuan, criticizes US concern:The Asahi Shimbun
A prolonged trade war as the us economy appears strong may lead to more investors pulling money out of China . That was the biggest drop in nearly a month and led to the redback's lowest dollar value since May past year .

The body now expects the USA economy to grow at a rate of 2.5 percent in 2019, a 0.2 percentage point decline from its April estimates.

It also said inflation in India is on the rise, estimated at 3.6 per cent in fiscal year 2017/18 and projected at 4.7 per cent in fiscal year 2018/19, compared with 4.5 per cent in fiscal year 2016/17, amid accelerating demand and rising fuel prices.

But China's involvement could also bring potential risks, he said.

USA investors have for some time ignored the increasingly strident White House rhetoric over trade with China to send stock markets to new highs. "Our probability that we would attach to further bad news has gone up", Obstfeld said.

Lagarde rejected the concerns of the US Treasury secretary, Steve Mnuchin, that China might manipulate its currency to make trade with the US more favourable and offset the effects of tariffs imposed by the Trump administration.

The effects on the U.S. and China would be particularly severe, with 2019 GDP losses of more than 0.9% in the United States and 1.6% in China in 2019.

Trump has levied or threatened tariffs on goods from economies around the world, notably China, but also on traditional allies such as the European Union.

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