The outlook for the global economy has darkened as trade tensions rise and growth becomes uneven, according to the International Monetary Fund (IMF).
While the IMF has maintained its global growth forecast of 3.9 per cent for this year and next, it has cut the outlook for the UK and the eurozone among others.
It said rows over trade are “greatest near-term threat” to the world economy.
It added: “The possibility for more buoyant growth than forecast has faded somewhat.
“Downside risks, on the other hand, have become more salient.”
The comments in the IMF’s updated World Economic Outlook forecast have emerged against a backdrop of protectionist tariffs by the US which have led to retaliation from Europe, China, Mexico and Canada.
The new tariffs represent just a small share of global trade for now but the IMF warned that if the measures escalate they could shave 0.5 per cent off global growth by 2020.
“The risk that current trade tensions escalate further—with adverse effects on confidence, asset prices, and investment—is the greatest near-term threat to global growth,” the IMF’s economic counsellor Maury Obstfeld said.
The IMF already expects trade volumes to grow by less than expected this year, rising 4.5%, against its 4.8 per cent forecast.
It said the US is particularly vulnerable due to retaliation.
Despite the concerns about trade, the IMF maintained its growth forecasts for the US and China for 2018.
In the US, the fund predicts economic expansion of 2.9 per cent this year, as tax cuts and increased government spending fuel a temporary surge.
China’s GDP growth is forecast at 6.6 per cent, but the IMF said measures the country is taking to reduce debt could lead to unanticipated negative effects.
Slowdown in Europe
Europe, by contrast, is grappling with unforeseen slowdown, as it wrestles with political uncertainty and issues related to Brexit.
The IMF cut its 2018 forecast for the UK to 1.4 per cent in 2018, down 0.2 per cent from its April projection.
It also said it expects the euro area economy to slow to 2.2 per cent, also 0.2% lower than predicted.
Overall, advanced economies are expected to grow by 2.4 per cent this year, down 0.1 per cent from the fund’s April outlook.
Emerging economies
The IMF said it continues to expect emerging markets and developing economies to grow by 4.9% this year.
But it cautioned that the headline figure masks stress in certain economies caused by factors like rising oil prices, a stronger dollar and increasing interest rates.
In Brazil, the IMF expects growth of 1.8 per cent, 0.5 per cent less than it did in April.
In India, the IMF predicts growth of 7.3 per cent this year, down 0.1 per cent due to rising oil prices.
