China Trade War to Hurt Global Economic Growth

11 October, 2018, 07:30 | Author: Regina Silva
  • China Trade War to Hurt Global Economic Growth

China's growth is still expected to be more than 6% next year, but the IMF's chief economist Maurice Obstfeld warned Beijing to concentrate on quality and sustainability of growth, not quantity of growth. "Several of the downside risks highlighted in the April 2018 World Economic Outlook (WEO) ... have become more pronounced or have partially materialized".

After a visit last week, the International Monetary Fund said Pakistan was facing significant economic challenges, with diminishing growth, high budget and current-account deficits, and low foreign-exchange reserves.

The IMF's analysis suggests that there is a 5 per cent probability, emerging market economies (excluding China) could face debt portfolio outflows of US$100 billion or more over a period of four quarters (equivalent to 0.6 per cent of their combined GDP), broadly similar in magnitude to the Global Financial Crisis.

The IMF said Monday that the global economy will grow 3.7 percent this year, the same as in 2017 but down from the 3.9 percent it was forecasting for 2018 in July. As IMF managing director Christine Lagarde warned, the 60 percent build-up in global debt by the public and private sectors to US$182 trillion over the past decade has raised the risk of global financial shocks.

Risks to the global financial system have risen over the past six months and could increase sharply if pressures in emerging markets escalate or global trade relations deteriorate further, the International Monetary Fund said on Wednesday.

With much of the US-China tariff war's impact to be felt next year, the Fund cut its 2019 US growth forecast to 2.5% from 2.7% previously, while it cut China's 2019 growth forecast to 6.2% from 6.4%.

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Also on Tuesday, it projected that inflation in Nigeria would increase to 13.5 per cent next year.

The three leading economies of the continent, Nigeria, South Africa and Angola were projected "to witness sluggish growth in 2019 and beyond". The group recently downgraded global growth forecasts.

Gasper said China had substantial government assets, reflecting years of high infrastructure investment. "These efforts should be supported by further reductions in subsidies and enhanced compliance with the Goods and Services Tax".

The IMF said the high downside risks in the medium-term are driven by relatively elevated United States interest rates, a strong U.S. dollar and a strong global risk appetite, which "tends to boost portfolio flows in the near term but foreshadows weaker inflows in the medium term". The report said that aggregate growth in the emerging market and developing economy group stabilised in the first half of 2018.

Further threats to global economy include "unsettled" politics and the escalating trade tensions between the USA and China.

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