Wed, Oct 10, 2018 - Page 1 News List

IMF says trade spat curbing growth

AFP, BALI, Indonesia

The US-China trade spat would hobble global growth, the IMF said yesterday, cutting its forecast for this year and next, and predicting that “everyone is going to suffer” from a clash between the world’s two biggest economies.

At a meeting on the Indonesian island of Bali, the IMF painted a cautious picture for the near future, saying that trade tensions and rising debt levels could dent China and the US, and leave developing economies especially vulnerable to sudden stresses.

“There is no denying that the susceptibility to large global shocks has risen,” IMF chief economist Maurice Obstfeld told reporters after the fund cut its outlook for global GDP growth by 0.2 percentage points to 3.7 percent for this year and next.

Tensions have soared in recent months with US President Donald Trump’s administration rolling out billions of US dollars in tariffs against China in a bid to tackle its trade deficit and rein in what Washington views as unacceptable trade practices by the Asian giant.

China has responded in kind with its own barrage of levies, rattling nerves, especially among other Asian economies and already vulnerable nations such as Argentina.

“Trade policy reflects politics and politics remains unsettled in several countries, posing further risks,” Obstfeld said.

The dominant US economy has been shielded so far from the ill effects of the trade spat, thanks to stimulus through tax cuts and spending policies, but that would wear off by 2020, the IMF said.

When the world’s two biggest economies are “at odds,” that is going to create “a situation where everyone is going to suffer,” Obstfeld said.

Growth estimates for the eurozone and Britain were also revised down, with the report saying that growth “may have peaked in some major economies.”

Finance ministers and central bankers from many of the IMF’s 189 member nations are meeting in Bali this week with talk of rising protectionism taking center stage.

The IMF report said “protectionist rhetoric” was being “increasingly turned into action,” warning that such uncertainty “could lead firms to postpone or forgo capital spending, and hence slow down growth in investment and demand.”

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.

Obstfeld, who retires from the IMF later this year, said there were bright spots, with some Latin American and African nations getting growth forecast upgrades.

The fund urged governments to focus on policies that could share the benefits of growth more widely, helping counter the growing mistrust of institutions and avoiding “protectionist reactions to structural change.”

It stressed that “cooperative solutions” to boost continued growth in trade “remain essential to preserve and extend the global expansion.”

With US GDP growth expected to drop from 2.9 percent this year to 1.8 percent by 2020, the IMF also warned about the potential risk of an “inflation surprise,” fueled by the same tax cuts and rising spending used to cushion the impact from the trade spat.

That could result in higher-than-expected interest rates from the US Federal Reserve and stock market uncertainty.

Fed rate hikes are already increasing pressure on emerging market economies by fueling an outflow of capital as investors seek higher returns.

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