IMF cuts growth forecast on trade war and emerging market concerns

Following the WTO’s decision to downgrade it’s trade growth forecast two weeks ago, the IMF has also cut its global economic growth forecast, citing increased weakness in emerging markets and escalating trade tensions. The revision is a further sign of the broad-based effect that US-China trade tensions will have on both regional and global economic growth.

The IMF cut its forecast for global economic growth for 2019 to 3.7 percent, down from 3.9 percent forecast in July. This is the first time it has downgraded its growth forecast in more than two years.

“The outlook is one of less balanced and more tentative expansion than we hoped for,” IMF chief economist Maurice Obstfeld said in the report.

The IMF has estimated that global output could fall by more than 0.8 percent in 2020 and drop 0.4 percent below its current trend line in the long-term if the Trump administration follows through on its current threats, the Straits Times reports.

According to IMF models, the trade war would impact both China and the US, but China would be the bigger casualty in the short term. Increased tensions would impact consumer and business confidence, and together with the negative financial market reaction this is likely to cut GDP in 2019 by approximately 0.9 percent in the US and 1.6 percent in China.

This follows on from the Asian Development Bank’s recent downgrade in its forecast for emerging Asia, from 6.0% this year to 5.9% in 2019, as reported in the Nikkei Asian Review. The continued threat of increased trade tensions and monetary tightening in the US and European Union has contributed to currency depreciation and market losses across most of Asia as well as emerging markets elsewhere.

Increasing trade tensions and other developments in global trade, such as digitalisation and China’s Belt and Road Initiative, will be key themes of Asia House’s upcoming conference in Singapore, Asia Trade in the New Global Order, on 22 November.