IMF warns of trade tensions

9th June, 2019 11:39:07 printer

WASHINGTON: The International Monetary Fund (IMF) on Thursday upgraded the U.S. economic growth forecast in 2019 to 2.6 percent, while warning of further escalation in trade tensions and rising risks to its financial stability.

Real gross domestic product (GDP) is expected to grow at an annual rate of 2.6 percent this year, before moderating to 1.9 percent in 2020, the IMF said in a concluding statement that describes the preliminary findings of its annual Article IV consultation to review the U.S. economy, reports Xinhua.

The estimation, however, only considered the tariffs that have been put in place, which means, if the United States implements all proposed additional tariffs on its trading partners, its GDP growth projection could be lowered.

Earlier this week, the World Bank, in its newly released semi-annual Global Economic Prospects report, said the U.S. growth is forecast to ease to 2.5 percent this year, and decelerate to 1.7 percent in 2020.

Despite a positive near-term outlook for the U.S. economy, the IMF said a deepening of ongoing trade disputes or an abrupt reversal of the recent ebullient financial market conditions represent "material risks" to the U.S. economy, with concomitant negative outward spillovers.

Rising import tariffs and other steps taken by the Trump administration are "undermining the global trading system," increasing restrictions on trade in goods and services, and catalyzing a cycle of retaliatory trade responses, the IMF said.

"Tariff measures are likely to be ineffective at containing bilateral trade deficits and will be damaging to the U.S. and to global macroeconomic outturns," it continued.

The proposed tariffs on all imported Mexican goods, in particular, would have a negative economic effect on both countries, and in sectors such as automobiles and agriculture, the effects can be quite "pronounced," Nigel Chalk, deputy director in the IMF's Western Hemisphere Department, said at a press conference Thursday.

Citing the IMF's estimate, IMF Managing Director Christine Lagarde said Wednesday in a blog post that the existing tariffs that Washington and Beijing have imposed on each other's goods since 2018 combined with the "envisaged" tariffs of 25 percent on roughly 267 billion U.S. dollars in Chinese products that the United States has threatened to levy would reduce global GDP by 0.5 percent in 2020.