Trade war escalation leaves IMF more pessimistic about world economy – The Economic Journal

Trade war escalation leaves IMF more pessimistic about world economy - The Economic Journal

The International Monetary Fund (IMF) is more pessimistic about global economic growth due to increased risks and less balance of expansion. In the World Economic Outlook (WEO) released on Tuesday, the institution led by Christine Lagarde points specifically to the potential impact of the trade war.

Expected growth is consistent with the pace since the second half of 2016, with the projected global expansion of gross domestic product (GDP) at 3.7% in both 2018 and 2019. In both cases, it represents a decrease of 0 , 2 percentage points outlook Of april.

"The expansion remained less balanced and may have peaked in some of the major economies. Downside risks to global growth have increased over the last six months and the potential for positive surprises has declined, "the IMF explains.

Overall growth is expected to remain stable at 3.7% by 2020 as the decline in growth in advanced economies by disrupting US fiscal stimulus and reversing the favorable effects of US demand on trading partners is offset by an increase in emerging market economy growth, according to the IMF.

"From then on, global growth is expected to slow to 3.6% in 2022-2023, largely reflecting the moderation in the growth of advanced economies towards the potential of this group," he says.

Tax reform effect fades in the US

The institution led by Christine Lagarde indicates that in the United momentum remains strong as fiscal stimulus continues to increase, but the 2019 outlook has been revised downward due to recently announced trade measures, including $ 200 billion in tariffs on imports of Chinese products.

Monetary policy is another potential 'trigger'. The US economy is above full employment, but the course of interest rate hikes that markets anticipate is less accelerated than that projected by the Federal Reserve.

In this sense, the trade war could also have an impact on global monetary policy. While conditions in financial markets remain accommodative in advanced markets, they could tighten up more quickly if, for example, trade tensions and policy uncertainty become more intense.

"The risks to global growth are tilted downward in the context of high policy uncertainty. Several of the negative risks highlighted in the WEO of April – such as the rise in trade barriers and the reversal of capital flows to emerging market countries with weaker fundamentals and political risk – have become more pronounced or partially materialized, " the IMF.

Cooperation is the IMF's 'revenue'

Among emerging markets and developing economies, prospects for growth of several energy exporters have been improved by rising oil prices, but growth forecasts have been cut in Argentina, Brazil, Iran and Turkey among others, reflecting specific factors, more stringent financial conditions, geopolitical tensions and more oil import costs.

"China and several other Asian countries are expected to experience somewhat weaker growth in 2019 as a result of trade measures," said the IMF, which anticipates China's GDP growth of 6.6 percent in 2018 and 6.2 percent in the following year (less 0.2 percentage points than in the previous projection).

In this scenario, the IMF advises fostering cooperation. "Countries need to work together to address challenges that extend beyond their borders. To preserve and extend the decade-long gains of global trade integration, countries must further reduce trade costs and resolve differences without increasing distorting barriers, "he adds.

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