The International Monetary Fund on Tuesday cut its global economic growth forecasts for 2018 and 2019, saying that trade policy tensions and the imposition of import tariffs were taking a toll on commerce while emerging markets struggle with tighter financial conditions and capital outflows.
The new forecasts, released on the Indonesian resort island of Bali where the IMF and World Bank annual meetings are getting underway, show that a burst of strong growth, fueled partly by U.S. tax cuts and rising demand for imports, was starting to wane.
The IMF said in an update to its World Economic Outlook it was now predicting 3.7 percent global growth in both 2018 and 2019, down from its July forecast of 3.9 percent growth for both years.
The downgrade reflects a confluence of factors, including the introduction of import tariffs between the United States and China, weaker performances by eurozone countries, Japan and Britain, and rising interest rates that are pressuring some emerging markets with capital outflows, notably Argentina, Brazil, Turkey and South Africa.
“U.S. growth will decline once parts of its fiscal stimulus go into reverse,” IMF chief economist Maurice Obstfeld said in a statement. “Notwithstanding the present demand momentum, we have downgraded our 2019 U.S. growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China’s retaliation.”
With much of the U.S.-China tariff war’s impact to be felt next year, the Fund cut its 2019 U.S. growth forecast to 2.5 percent from 2.7 percent previously, while it cut China’s 2019 growth forecast to 6.2 percent from 6.4 percent. It left 2018 growth forecasts for the two countries unchanged at 2.9 percent for the United States and 6.6 percent for China.