IMF warns of escalating trade spat

The global economy is expected to grow at a solid pace this year and in 2019, boosted by faster expansion in the United States and Europe, according to the International Monetary Fund (IMF).

The global lender of last resort released an update to its "World Economic Outlook" report on Tuesday, predicting the world economy to grow by 3.9 percent in 2018 and 2019 — an improvement on the 3.8 percent global growth it expected last year.

The IMF raised its US forecast by two tenths of a point for both years, to 2.9 percent for 2018 and 2.7 percent for 2019, which follows big upward revisions in the October report, adjusted for the impact of President Donald Trump's changes to US tax policy.

In other projections, the IMF upgraded the forecast for the eurozone to 2.4 percent for 2018, a revision of two tenths of a point compared with an earlier estimate. Japan — the world's third-largest economy — is seen expanding at a more sluggish rate of 1.2 percent this year, and slowing to slowing to 0.9 percent in 2019.

China will enjoy unchanged growth of 6.6 percent and 6.4 percent, respectively, in the next two years, while India is expected to expand between 7.4 and 7.8 percent. Forecasts were cut slightly for Canada and Middle Eastern and North African countries, as well as a number of low-income countries.

The IMF cautioned that the growth "momentum is not assured," given trade tensions between the United States and China and the expected reversal of the positive effects from the US tax cuts.

No winners in trade wars

IMF Chief Economist Maurice Obstfeld said the prospect of trade restrictions threatened to "undermine confidence and derail growth prematurely."

"That major economies are flirting with trade war at a time of widespread economic expansion may seem paradoxical, especially when the expansion is so reliant on investment and trade," Obstfeld told a news conference ahead of this week's spring meetings of the IMF and World Bank, where trade is expected to dominate discussions.

"Our strong message at this meeting is there is a multilateral system. Let's use it and proceed in a collaborative way rather than conflictive way," he said, adding that there are "not going to be any winners coming out of a trade war."

Last month, the Trump administration imposed steep tariffs on global steel and aluminum exports to the US and threatened China with about $100 billion (€81 billion) in additional tariffs. As a result, Beijing announced its own tariffs on US goods in retaliation, targeting especially US agricultural products.

According to research done by the IMF in 2016, an increase in tariffs and other trade barriers could lead to a 10 percent spike in import prices in all countries, and subsequently lower global output and consumption by about 1.75 percent after five years and close to 2 percent in the long term. Global trade would fall 15 percent after five years and 16 percent in the long run under such a scenario, the IMF reported.

Growth cycle wanes

With the global expansion already entering its ninth year, the IMF also predicted growth to slow down in the years beyond 2019.     

Like other advanced economies, the United States will max out growth and return to a more sluggish pace, the IMF reported, noting that stronger growth would be "held back by aging populations and lackluster productivity."

The IMF noted that the sweeping US tax cuts were expected to fuel higher growth only through next year, and after that would "subtract momentum." And, because the US boost accounts for most of the higher world expansion, global growth is projected to "gradually decline to 3.7 percent by the end of the forecast horizon."

But, for the next few decades, the risks to the global growth forecasts were broadly balanced, it added, with the potential for stronger business profits to increase hiring and investments that could boost productivity.

uhe/jd (Reuters, AFP, dpa)