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IMF sees a weaker global economy but upgrades US forecast

Published:Wednesday | July 24, 2019 | 12:14 AM
A cargo ship is docked at the Port of Los Angeles, in Los Angeles, California.  AP
A cargo ship is docked at the Port of Los Angeles, in Los Angeles, California. AP

The International Monetary Fund (IMF) is downgrading its outlook for the world economy because of simmering international trade tensions.

But at the same time, the fund is boosting its forecast for the United States economy this year, citing expectations that the US Federal Reserve will cut interest rates.

The IMF said Tuesday that it expects the global economy to expand by a “sluggish” 3.2 per cent in 2019, down from 3.6 per cent in 2018 and from the 3.3 per cent growth it forecast for this year back in April. The 189-country lending organisation blamed the lacklustre growth on heightened trade tensions and specifically a tariff war between the world’s two biggest economies, the United States and China.

The fund said it expects the US economy to grow 2.6 per cent in 2019, down from 2.9 per cent last year but up from the 2.3 per cent it forecast in April.

The Fed improved prospects for US growth by abandoning plans to keep raising interest rates. It is easing its policies partly to offset the economic fallout from President Donald Trump’s trade wars. The Fed is widely expected to cut rates at its meeting next week.

The IMF expects the 19-country eurozone to record modest 1.3 per cent growth this year. It forecasts 6.2 per cent growth for the Chinese economy, slowest since 1990 when China faced sanctions following the brutal crackdown on pro-democracy demonstrations in Beijing’s Tiananmen Square. And the lender predicts that the Japanese economy will eke out a 0.9 per cent gain.

US-China trade friction and the prospect of the United Kingdom’s messy divorce from the European Union are disrupting global trade. The IMF expects trade to expand 2.5 per cent this year, its slowest pace since 2016 and a sharp downgrade from the 3.4 per cent growth it forecast in April.