IMF: US trade wars to slow global economic growth

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The International Monetary Fund (IMF) on Monday said the global economy would grow at a slower pace than the group had projected due to rising trade tensions between the U.S. and major world powers.

The IMF cut its projection for global growth for 2018–2019 by 0.2 percentage points of gross domestic product, citing rising risks to worldwide economic expansion. The downgrade was among several ominous projections included in the IMF’s latest economic outlook report released by the group on Monday.

The IMF releases economic forecasts in April and October of each year and predicted a 3.9 percent growth rate for the next two years in its first report of 2018.

IMF research director Maurice Obstfeld wrote Tuesday that the projection “appears over-optimistic,” noting that growth has plateaued at 3.7 percent amid mounting threats to global prosperity.

Obstfeld said that growth had been “less balanced” than expected as developing economies faltered and larger countries leaned on “unsustainable” policies. He also said the impact of tariffs and the deteriorating U.S.-China relationship would weigh on global growth.

“The likelihood of further negative shocks to our growth forecast has risen,” Obstfeld said. “These concerns raise the urgency for policymakers to act.”

The Trump administration’s trade policy is central to the IMF’s concerns about global growth. It’s unclear whether the revamped free trade agreement with Canada and Mexico will pass Congress. The U.S. and China are nowhere close to resolving their deepening feud over tariffs and other trade barriers. President Trump has also threatened to impose tariffs on foreign autos, which could derail the economies of several U.S. allies and raise car prices.

Obstfeld said that the trade conflicts have damaged the global economy beyond just the harm to specific industries and businesses in the crosshairs of tariffs. He also said that fraying international policy cooperation would make it harder for the U.S. to find a successful way out of its trade wars.

The IMF projects U.S. growth to taper through 2019 due to higher costs driven by tariffs and the phase out of stimulus driven by the 2017 tax-cut bill. The U.S. economy grew at 4.2 percent in the second quarter of 2018, according to federal data released in August, and the Federal Reserve projected a 3.1 percent annual growth rate in September.

The IMF also said that rising U.S. interest rates driven in part by Fed rate hikes were putting greater fiscal pressure on developing and emerging market economies, slowing growth.

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