Friday, 19 October, 2018

International Monetary Fund cuts world economic growth forecasts as tariffs hit

Punjab CM Usman Buzdar welcoming PM Imran Khan. — PTI Punjab CM Usman Buzdar welcoming PM Imran Khan. — PTI
Ginger Lawrence | 09 October, 2018, 12:23

This acceleration, the world body said, reflected a rebound from transitory shocks (the currency exchange initiative and implementation of the national Goods and Services Tax), with strengthening investment and robust private consumption.

With much of the US-China tariff war's impact to be felt next year, the Fund cut its 2019 US growth forecast to 2.5% from 2.7% previously, while it cut China's 2019 growth forecast to 6.2% from 6.4%.

Before heading off to Bali, Indonesia for an annual meeting with the International Monetary Fund and the World Bank later this week (from October 12 to 14), the ministry of finance announced that it will immediately start negotiations with the International Monetary Fund. For next year, trade is seen growing just four percent, a half point less than the prior forecast.

But the United States tax cuts and rising spending that have boosted growth, helping compensate for the impact of the growing trade conflict, could spark a sudden "inflation surprise", and in turn lead to faster-than-expected rise in U.S. interest rates, according to the fund. Angola, contracting by 0.1 percent this year.

Global trade is projected to expand by 4.2 percent this year, six tenths less than expected in July and almost a full point lower than the forecast in April.

Obstfeld said financial markets have overly emphasized short-term movements in China's currency, adding that the yuan has often quickly recovered from periods of volatility in recent years. Over the medium term, growth is expected to gradually slow to 5.6 per cent as the economy continues to make the transition to a more sustainable growth path with continued financial de-risking and environmental controls, it noted.

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The euro zone's 2018 growth forecast was cut to 2% from 2.2% previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes. The IMF called for reforms in labour and land markets in the country, as well as improving the business climate. "Growth has proven to be less balanced than hoped".

"A high interest burden and risks from rising yields also require continued focus on debt reduction to establish policy credibility and build buffers".

"The forecast does not incorporate the impact of further tariffs on Chinese and other imports threatened by the United States, but not yet implemented, due to uncertainty about their exact magnitude, timing, and potential retaliatory response", the International Monetary Fund said.

It also said inflation in India is on the rise, estimated at 3.6 per cent in fiscal year 2017/18 and projected at 4.7 per cent in fiscal year 2018/19, compared with 4.5 per cent in fiscal year 2016/17, amid accelerating demand and rising fuel prices.

He said the aggregate growth rate of Africa is being held down by its three largest economies. "Any sharp reversal for emerging markets would pose a significant threat to advanced economies", he added.