U.S.-China tariffs drag global growth to lowest in a decade -IMF
(Adds comments from news conference on tariffs, monetary
By David Lawder and Andrea Shalal
WASHINGTON, Oct 15 (Reuters) - The U.S.-China trade war will
cut 2019 global growth to its slowest pace since the 2008-2009
financial crisis, the International Monetary Fund warned on
Tuesday, but said output would rebound if their dueling tariffs
The IMF said its latest World Economic Outlook projections https://www.imf.org/en/Publications/WEO
show 2019 GDP growth at 3.0%, down from 3.2% in a July
forecast, largely due to increasing fallout from global trade
The forecasts set a gloomy backdrop for the IMF and World
Bank annual meetings this week in Washington, the first for the
Fund's new managing director, Kristalina Georgieva. She is
inheriting a range of problems, from stagnating trade to unrest
in Ecuador and political backlash in Argentina over IMF-mandated
Without a nearly simultaneous easing of monetary policy by
major central banks, IMF chief economist Gita Gopinath said
global growth would be half a percentage point lower in 2019 --
at 2.5%, teetering on the edge of widespread recession.
"The weakness in growth is driven by a sharp deterioration
in manufacturing activity and global trade, with higher tariffs
and prolonged trade policy uncertainty damaging investment and
demand for capital goods," Gopinath said.
The global crisis lender said that by 2020, announced
tariffs would reduce global economic output by 0.8%. That
translates to a loss of about $700 billion -- the equivalent of
making Switzerland's economy disappear.
The growth downgrade assumes that all announced U.S. tariffs
on Chinese goods are put in place, along with Chinese
retaliation. These include a 5 percentage point U.S. duty
increase on Chinese goods originally scheduled for Tuesday and
10% tariffs on $156 billion in Chinese goods scheduled for Dec.
If these incremental moves are scrapped completely by a
U.S.-China trade deal, the global GDP loss would shrink to 0.6%,
Gopinath said. She added that all output would rebound by 0.8%
if all U.S. and Chinese tariffs were removed.
Services were still strong across much of the world, but
there were some signs of softening in that sector in the United
States and Europe, the IMF said.
For 2020, the Fund said global growth was set to pick up to
3.4% due to expectations of better performances in Brazil,
Mexico, Russia, Saudi Arabia and Turkey. But this forecast was a
tenth of a point lower than in July and was vulnerable to
downside risks, including worse trade tensions, Brexit-related
disruptions and an abrupt aversion to risk in financial markets.
If Britain were to leave the European Union with no customs
deal in place, it would cut Britain's GDP output level by as
much as 5% in the next two years and 3% in the longer term,
INVESTMENT, TRADE STALL
The World Economic Outlook report spells out in sharp detail
the economic difficulties caused by the U.S.-China tariffs,
including direct costs, market turmoil, reduced investment and
lower productivity due to supply chain disruptions.
The IMF said foreign direct investment abroad by advanced
economies came to "a virtual standstill" in 2018 after
increasing in earlier years to average more than 3% of global
gross domestic product annually - or more than $1.8 trillion.
The institution said the decline of some $1.5 trillion
between 2017 and 2018 reflected purely financial operations by
large multinational corporations, including in response to
changes in U.S. tax law.
Global vehicle purchases fell by 3% in 2018, reflecting a
drop in demand in China after expiration of tax incentives and
production adjustments after adoption of new emissions standards
in Germany and other eurozone countries.
Global trade growth reached just 1% in the first half of
2019, the weakest level since 2012, weighed down by higher
tariffs and prolonged uncertainty about trade policies, as well
as a slump in the automobile industry.
After expanding by 3.6% in 2018, the IMF now projects global
trade volume will increase just 1.1% in 2019, 1.4 percentage
points less than it forecast in July and 2.3 percentage points
less than forecast in April.
Trade growth was expected to rebound to 3.2% in 2020,
however risks remained "skewed to the downside," the IMF said,
with a significant drag on both the U.S. and Chinese
TARIFF, RESHORING LOSSES
New IMF projections show China's GDP output falling 2% in
the near term under the current tariff scenario and 1% in the
long term, while U.S. output would decline 0.6% over both time
"To rejuvenate growth policymakers must undo the trade
barriers put in place with durable agreements, rein in
geopolitical tensions and reduce domestic policy uncertainty,"
But she was cautious about U.S. President Donald Trump's
announcement on Friday about the first phase of a U.S. trade
deal with China, saying that more details were needed about the
The IMF also modeled what would happen if multinational
firms in the United States, euro area and Japan reshored enough
production to reduce nominal imports by 10%. The lender found
that it would drive up consumer prices and reduce domestic
demand, while throttling the spread of technology to emerging
"At 3% growth, there is no room for policy mistakes and an
urgent need for policymakers to cooperatively deescalate trade
and geopolitical tensions," it said. "Further escalation of
trade tensions and associated increases in policy uncertainty
could weaken growth relative to the baseline projection."
(Reporting by David Lawder and Andrea Shalal; Editing by
Cynthia Osterman and Lisa Shumaker)
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