IMF Cuts Forecast for Global Growth as Trade War Takes Toll

The International Monetary Fund said the world economy is plateauing as the lender cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.

On the eve of its annual meetings in Bali, Indonesia, the fund on Tuesday projected a global expansion of 3.7 percent this year and next, down from the 3.9 percent projected three months ago. It was the first downgrade since July 2016.

While the global economy is still on track to match last year’s pace, which was the strongest since 2011, the new outlook suggests fatigue is setting in and the overall performance masked divergence with mounting weakness in emerging markets from Brazil to Turkey.

The fund left its 2018 U.S. forecast unchanged but cut its expectation for next year, citing the impact of the trade conflict.

Risks to the global outlook have risen in the last three months and tilt to the downside, the IMF said. Threats include a further inflaming of the trade war between the U.S and countries including China, and a sharper-than-expected rise in interest rates, which would accelerate capital flight from emerging markets.

If the trade war continues, it could take a significant bite out of global growth, according to the fund. It estimates global output could fall by more than 0.8 percent in 2020 and remain 0.4 percent below its trend line over the long term, in a scenario where Trump follows through on all his threats, including global duties on cars. Output could fall by more than 1.6 percent in China and over 0.9 percent in the U.S. next year, according to the IMF’s models.