WASHINGTON, The global economy will continue to grow at a steady 3.9 percent through next year but brewing trade tensions between the United States and China pose risks ahead, the International Monetary Fund reported Tuesday.
In the latest update to its World Economic Outlook, the IMF raised its estimates for US and European Union growth from its January forecast.
The IMF predicted that the US economy will grow 2.9 percent this year, up from the 2.7 percent it had forecast in January and from the 2.3 percent growth the economy achieved last year.
The new forecast on global growth is also an improvement on the 3.8 percent seen last year.
However, the IMF cautioned that growth “momentum is not assured,” given recent trade tensions between the US and China and the expected reversal of the positive effects from sweeping US tax cuts, which are expected to fuel higher growth only through 2019.
“Despite the good near-term news, longer-term prospects are more sobering,” IMF Chief Economist Maurice Obstfeld told reporters.
Speaking at a news conference, Obstfeld said that the IMF had run economic simulations about the impact of a far-reaching trade war that would include across-the-board tariffs of 10 percent.
The computer simulations, he said, showed a “fairly substantial” impact from tariffs of that magnitude.
Because the US boost accounts for most of the higher world expansion, beyond 2019 “global growth is projected to gradually decline to 3.7 percent by the end of the forecast horizon,” according to the Outlook report.
“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,” said Obstfeld, warning, “the prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail global growth prematurely.” US President Donald Trump last month imposed steep tariffs on steel and aluminum imports and threatened to impose more on tens of billions of Chinese goods, prompting Beijing to respond in an escalating series of threats.
The IMF warned that a worsening of trade conflict could have broader implications on market confidence as well.
The fund’s outlook report cited the market turbulence in early February and into March amid the US-China trade dispute, when US stocks stumbled in after surging to repeat records in the first weeks of 2018.
Source: Kuwait News Agency