IMF World Economic Outlook Report cites trade tensions as risks

Summary:

• IMF maintains global GDP to advance 3.9% this year
• Trade tensions expected to derail global economic recovery
• S. GDP expected to advance 2.9% in 2018
• Japan GDP expected to advance 1.2% in 2018
• UK GDP expected to advance 1.6% in 2018
• Eurozone GDP to advance 2.4% in 2018

The International Monetary Fund released its quarterly World Economic Outlook report last week. In the report, the IMF warned that the rising trade tensions between the United States and China could potentially hamper the steady pace of growth in the global economy. The report however noted that there was still time for the world’s two largest economies to step back from escalating tensions.

The IMF World Economic Outlook Report maintained an unchanged view on the pace of global growth for this year and for 2019. It forecast that global growth is expected to average 3.9% this year. This was an unchanged print from the forecasts released in the January report. The IMF cited that growth would continue with expectations of stronger consumption on account of the tax cuts.

However, the IMF’s chief economist cautioned that the effects of the tax cuts would quickly fade with growth expected to slow in the coming years. Maurice Obstfeld, the IMF’s chief economist said that the prospects of trade restriction and counter measures by countries could undermine confidence in the global trade. This is expected to derail the pace of growth rather prematurely. The comments come ahead of the World Bank spring meetings where trade talks are likely to be the dominating issue.

 

When questioned if the trade war was already underway, the IMF’s chief economist said that although the U.S. and China had “fired warning shots” there were no signs of the trade wars being activated just as yet.

He said that there was still room for countries to engage in mutual discussions and to take advantage of the dispute resolution mechanisms in place rather than to impose trade restrictions.

Last month, the U.S. President Trump surprised by first announcing tariffs on steel and aluminum imports to the U.S. This quickly saw prices of the raw materials rising sharply with firms ordering ahead of the date when the new tariffs would come into effect.

Later on, Trump announced tariffs on particular goods imports from China. This saw China hitting back with its own share of tariffs on certain U.S. goods. However, the trade tensions were seen easing after China’s Premier Xi announced his willingness to open further access to the global markets into China.

 

Despite the easing tensions, the U.S. President Trump continued to keep up the pressure after he declared that China, among few other countries were keeping their respective currencies deliberately weaker against the U.S. dollar.

The U.S. Treasury department released its semi-annual currency market report two weeks ago. It named, India, China, Germany, Switzerland, Japan on its watch list, but stopped short of naming China as a currency manipulator.

The IMF World Economic Outlook Report said that global growth was under pressure. It raised the U.S. growth projections by 0.2 percentage points from the January report and forecast that the U.S. economy would advance 2.9% on average in 2018 and 2.7% in 2019.

This Friday, the preliminary GDP report is expected to be released for the first quarter ending March 2018 for the United States.

The U.S. administration has maintained that the tax cuts passed in December last year would allow the U.S. economy to sustain a GDP growth rate of above 3.0% for years.

For other economies, the IMF World Economic Outlook Report did not make any major changes with the exception of the UK. Growth forecasts were lifted only modestly from 1.5% to 1.6% for this year. Japan’s GDP was expected to grow at a steady pace of 1.2% this year while the Eurozone’s GDP was forecast to rise 2.4%.