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World growth downgrade warning by IMF

Global trade tensions, continued uncertainty and rising prospects for a Brexit no-deal are undermining the strength of the global economy facing a “precarious” 2020, warned Tuesday (Jul 23) by the International Monetary Fund.

Trade conflicts undermine investment and weaken production, and the IMF urged countries not to use tariffs to resolve their differences.

The IMF trimmed the global forecast issued in April by 0.1 percentage point this year and next in the quarterly update of its World Economic Outlook, with growth expected to hit 3.2 per cent in 2019 and 3.5 per cent in 2020.

But the report sounded the alarm, saying things might go wrong quickly.

“Global growth is sluggish and precarious, but not because some of it is self-inflicted,” IMF chief economist Gita Gopinath told reporters.

“The global economy’s dynamism is being weighed down by prolonged policy uncertainty as trade tensions continue to increase despite the recent US-China trade truce… and prospects for a Brexit no-deal have increased,” she said at a briefing in Santiago, Chile.

Gopinath warned that next year’s recovery “is precarious” because “close to 70% of the increase is based on improving growth performance in stressed emerging markets and developing economies and is therefore subject to high uncertainty.” Nevertheless, the United States, which is at the centre of most trade tensions, saw one of the rare upgrades in the report because it had a shortening effect.

The IMF raised the US GDP forecast by three-tenths of a percentage point to 2.6 per cent for 2019, but weakening demand, partly due to trade conflicts and tariffs, points to “slowing momentum over the rest of the year.”

China was already experiencing a slowdown, which is the main target of US trade actions. But “the negative effects of tariff escalation and weakening external demand added pressure,” the report said. A sudden downturn in China puts the world economy at a significant risk.

The report this year and next year downgraded Chinese growth to 6.2 per cent and 6.0 per cent by a tenth of a point.

AVOID POLICY MISSTEPS

The IMF warned that there is an abundance of “potential triggers” for the situation to swiftly turn negative, including the possibility of more US tariffs on China or European cars, as well as a Brexit no-deal and high debt levels in many countries.

“While tensions fell in June, lasting differences-solving agreements remain subject to potentially protracted and challenging negotiations,” the report said.

Gopinath reiterated the calculation of the IMF, indicating that the cumulative impact of last year’s imports and prospective sanctions held in May between the United States and China could decrease worldwide GDP by 0.5% by 2020.

Once again, the recent prediction was complete of downgrades, with tiny descending changes for Germany and Japan, but far more huge reductions for Brazil, Mexico, Russia, India, and South Africa–nations that were the motor of worldwide development following the economic recession of 2008.

Again, the IMF stressed that resolving uncertainty remains the most pressing issue for the global economy and said governments should avoid “policy mistakes” that could have “a severe weakening effect on sentiment, growth, and job creation.” And “countries should not use tariffs to target bilateral trade balances,” the report said while recognising that “trade disputes may be deeper symptoms.”

According to press accounts, US Trade Representative Robert Lighthizer will guide a team to China on Monday for the first face-to-face conference since negotiations crashed in May.

Secretary of Commerce Wilbur Ross said the “overriding goal” is to get a good deal that “is much more essential than timing accuracy.”

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