Trade war could trigger sharp global slowdown

22 January, 2019, 11:06 | Author: Erin Carter
  • A selection of 100 and 200 South African rand bank

The multilateral agency on Monday retained its growth projection for the country at 7.5 per cent for 2019-20 and said it is likely to accelerate to 7.7 per cent in 2020-21.

Yesterday Trade Minister Simon Birmingham told British businesspeople in London he wants the new arrangements in place as soon as possible after Brexit.

"The downward revisions are modest; however, we believe the risks to more significant downward corrections are rising".

The IMF expects the Chinese economy - the world's second biggest - to grow 6.2 percent this year, down from 6.6 percent in 2018.

The IMF said US-China trade confrontations, Brexit and other uncertainty are threatening to drag down global growth even further.

The IMF downgraded its estimates for global growth for 2019 and 2020 to 3.5 per cent and 3.6 per cent respectively from 3.7 per cent each as previously predicted, warning that the expansion seen in recent years was losing momentum.

"Policymakers need to act now to reverse headwinds to growth and to prepare for the next downturn", she said.

The IMF saw China's growth slipping from 6.6 per cent last year to 6.2 per cent this year.

The previous forecast for this year was 3.7 percent.

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The IMF lowered its projection for Saudi Arabia´s gross domestic product growth this year to 1.8 percent, down from 2.4 percent in its October report.

It said emerging market and developing economies had been tested by hard external conditions over the past few months amid trade tensions, rising U.S. interest rates, dollar appreciation, capital outflows, and volatile oil prices.

The Washington DC-based fund maintained its 2018 estimate for global growth at 3.5 per cent, but warned that weakness seen in the second half of a year ago will carry over in the coming months.

"We therefore believe growth of below 6.5 percent will become the norm from here, and that Beijing is nearly certainly going to accept this new reality and lower the growth target for 2019 to 6-6.5 percent", they said in a research note.

Rising trade tensions pose a major risk to the world economy.

Washington and Beijing declared a 90-day truce on December 1, but the risk remains that tensions will flare up again in the Spring and "casts a shadow over global economic prospects". "Higher trade uncertainty will further dampen investment and disrupt global supply chains".

The IMF's latest report cited the unresolved trade war between the United States and China, and the possibility of Britain exiting the European Union without a deal.

"Across all economies, measures to boost potential output growth, enhance inclusiveness, and strengthen fiscal and financial buffers in an environment of high debt burdens and tighter financial conditions are imperatives", it said.

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