China Trade War to Hurt Global Economic Growth

Illustration Jayachandran  Mint

Illustration Jayachandran Mint

Amid heightened US-China tensions, the International Monetary Fund (IMF) revised Taiwan's GDP growth forecasts for 2018 and 2019 upward to 2.7% and 2.4% respectively in its latest World Economic Outlook report issued on Monday.

The IMF on Tuesday cut its outlook for global GDP growth by two-tenths to 3.7 percent for 2018 and 2019, citing the economic uncertainty.

If projections are true, then India would regain the tag of fastest growing major economies of the world, crossing China with more than 0.7 percentage point in 2018 and an impressive 1.2 percentage point growth lead in 2019. The FTSE 100, which closed at 7,233.33, is forecast to open 10 points higher when trading begins shortly.

"The forecast does not incorporate the impact of further tariffs on Chinese and other imports threatened by the United States, but not yet implemented, due to uncertainty about their exact magnitude, timing, and potential retaliatory response", the International Monetary Fund said.

The IMF expects the U.S. economy to grow 2.9 per cent this year, the fastest pace since 2005 and unchanged from the July forecast.

Although the report said the sub-Saharan African economy was recovering from 2.7 per cent in 2017 to an average rate of about 3.1 per cent in 2018 and 3.8 per cent next year. The IMF projections don't take into account Mr Trump's threat to expand the tariffs to effectively all of the more than US$500 billion in goods the United States bought from China past year. However, there are fears that the terms of any new loan will be more stringent than those in 2013, due to tense relations with the U.S., the lender's biggest donor.

Global trade is projected to expand by 4.2 percent this year - 0.6 percent less than expected in July - dropping to 4 percent next year.

The IMF said it expects inflation to accelerate around the world this year, due largely to increasing commodity prices.

"The government has expressed its desires to enact deep structural reforms that might break the cycle of Pakistan needing financial support from the Fund", he said, the paper quoted. But growth could weaken significantly further if additional trade protectionist measures are put in place, it said.

"An intensification of trade tensions and the associated further rise in policy uncertainty could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade", the report said.

Nigeria's economy recorded slow growth in the second quarter of 2018 as oil sector contracted by 3.95% compared to 14.77% growth in the first quarter and 3.53% year-on-year.

Meanwhile, Dr Obstfeld is concerned that several economies have adopted policies that are "unsustainable over the longer term" to boost growth.

He called on countries to ensure inclusive growth, which he said was "more important than ever".

Lagarde said a currency war would not be welcome news, but she also suggested China has been moving in the right direction.

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