Published: Tue, October 09, 2018
Money | By Armando Alvarado

International Monetary Fund revises medium-term growth rate downward

International Monetary Fund revises medium-term growth rate downward

The last one was in September, 2013 when the International Monetary Fund approved a Dollars 6.6 billion loan support to the government's programme to stabilise its economy and boost growth while expanding its social safety net to protect the poor.

The IMF expects growth in Russian Federation at 1.7 percent this year and 1.8 percent next year, it said in an update to its World Economic Outlook on Tuesday. Output could fall by more than 1.6 per cent in China and over 0.9 per cent in the USA next year, according to the IMF's models. "Notwithstanding the present demand momentum, we have downgraded our 2019 USA growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China's retaliation". Bond markets were closed, leading USA indexes to a mixed finish after a day of light trading.

It's so concerned about the potential for a bad deal it has downgraded global economic growth to 3.7% for both 2018 and 2019, in its latest World Economic Outlook.

If China and the United States were to resolve their trade differences, it "would be a significant upside to the forecast".

Both of those figures would mark the slowest rate of expansion for China since 1990, when growth shuddered in the aftermath of the violent suppression of massive Tiananmen Square pro-democracy demonstrations the previous year.

"Across emerging market and developing economies, activity continued to improve gradually in energy exporters", the International Monetary Fund said.

"But there is no denying that the susceptibility to large global shocks has risen", Obstfeld said.

Fed rate hikes are already increasing pressure on emerging market economies by fuelling an outflow of capital as investors seek higher returns.

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India's medium-term growth prospects remain strong at 7.75 per cent, benefiting from ongoing structural reform, but have been marked down by just under 0.5 percentage point relative to the April 2018 WEO, it said.

The IMF report said "protectionist rhetoric" was being "increasingly turned into action", warning such uncertainty "could lead firms to postpone or forgo capital spending and hence slow down growth in investment and demand".

Russian Federation was among the few energy-rich emerging market countries whose growth forecasts were bumped up.

Trade tensions are expected to continue although Fund officials view US-Mexico-Canada trade agreement as a positive sign.

Maurice Obstfeld, the IMF Economic Counsellor, warned against the rising tide of protectionism, saying that without multilateralism "the world will be a poorer and more unsafe place".

"We will be listening very, very attentively when and if they come to us", said Obstfeld.

ANALYST'S TAKE: "Renewed tension between the U.S. and China has capped risk sentiment as a range of issues from trade to diplomacy are likely to challenge China-U.S. relationship", Zhu Huani of Mizuho Bank said in a commentary.

Among major US trading partners, Japan and the European Union have won exemptions from the planned USA auto tariffs while respective trade negotiations with Washington are underway.

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