Escalating trade tensions to harm global growth, IMF warns as it further downgrades forecasts

Escalating trade tensions could hit global growth, the International Monetary Fund warned as it downgraded forecasts for the second time in four months.

The IMF’s world economic outlook warned that China’s growth slowdown could accelerate if trade tensions continue and trigger sharp sell offs in financial markets, while the “Brexit cliffhanger” could also slow growth.

The IMF downgraded its global growth forecast to 3.5 per cent in 2019 from 3.7 per cent in its October projections.

Its 2020 prediction also fell 0.1 per cent to 3.6 per cent, but the IMF warned that downside risks were rising.

Managing director Christine Lagarde said: “The bottom line is that after two years of strong expansion, the world economy is growing more slowly than expected and risks are rising.”

Chief economist Gita Gopinath said: “While financial markets in advanced economies appeared to be decoupled from trade tensions for much of 2018, the two have become intertwined more recently, tightening financial conditions and escalating the risks to global growth.

“The global expansion is weakening and at a rate that is somewhat faster than expected.”

The ongoing trade war between the US and China, which has seen the world’s two largest economies impose tariffs on each other has heightened risk and impacted on global markets.

The IMF said: “The main shared policy priority is for countries to resolve cooperatively and quickly their trade disagreements and the resulting policy uncertainty, rather than raising harmful barriers further and destabilising an already slowing global economy.”

It also expected China’s growth slowdown to continue and Brexit to further harm growth.

The UK’s 2019 projection of 1.5 per cent growth remained uncertain, and assumed a Brexit deal would be reached this year and a gradual transition out of the EU, the report said.