IMF warns US vulnerable in escalating trade fight

18 July, 2018, 13:27 | Author: Regina Silva
  • The headquarters of the International Monetary Fund in Washington. India’s economy was a key beneficiary of falling crude oil prices between 2013 and 2015 given that low oil prices incentivise consumption

"Those are the main factors behind the downgrade", Obstfeld said.

The IMF will announce its next World Economic Outlook Update in October. Nigeria's growth is set to increase from 0.8% in 2017 to 2.1% in 2018 and 2.3% in 2019 on the back of an improved outlook for oil prices.

"The widespread political malaise driving many current policy risks, including on the trade front, has roots in several countries' experiences of noninclusive growth and structural transformation, heightened by the financial crisis of 2007-09 and the difficulties that followed", said Obstfeld, who added that without intervention, the political future would darken.

Although the global recovery is in its second year, growth has "plateaued" and become less balanced, and "the risk of worse outcomes has increased", Obstfeld told reporters, and in fact the forecast for this year was revised downward, but was rounded up to 3.9 percent.

The IMF said that China would continue to grow at the slower rates it expected in April, of about 6.6 per cent this year.

International Monetary Fund chief economist Maury Obstfeld warned that "the risk of worse outcomes has increased" for the world economy as trade conflicts widened. India's economy was a key beneficiary of falling crude oil prices between 2013 and 2015, given that low oil prices incentivise consumption.

"That adds to oil and tighter global financial conditions in taking a little bit off growth for next year", he said.

Overall, the WEO sees Emerging and Developing Asia maintaining its "robust performance", posting a growth rate of 6.5 per cent in 2018-19.

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Click here for enlarge

The IMF warned that some large economies in Latin America, emerging Europe, and Asia will growth at rates below its April forecasts.

The RBI will now come up with its monetary policy in August amid a five-month-high consumer price index inflation rate at 5 per cent and more than a four-year high wholesale price index inflation rate at 5.77 per cent in June.

Global current account imbalances would widen owing to a relatively high demand growth in the U.S., the report added.

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

"Our modeling suggests that if current trade policy threats are realised and business confidence falls as a result, global output could be about 0.5pc below current projections by 2020", the report warned.

"As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable".

The report noted that worldwide migration pressures were "politically destabilising" and could not be dealt with without cooperative action to "improve global security, support the Sustainable Development Goals, and resist climate change and its effects".

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