Updates with details throughout
The IMF yet again has marked down its projections for global economic growth this year and next because of the US-China trade war.
The IMF, in an update to its World Economic Outlook, projected today that global GDP will grow by 3pc this year, down by 0.2 percentage point from its forecast in July, and lower than the 3.6pc growth in 2018. The forecast for 2020 was lowered by 0.1 percentage point to 3.4pc. IMF forecasts are widely used in the modeling behind key oil demand projections, including the IEA's.
The change in the latest update of its key forecast is the fifth consecutive downward revision by the IMF, each tied to the gradual escalation in tariffs affecting trade between the world's two largest economies, the US and China.
"We are, once again, downgrading growth for 2019 to 3pc, its slowest pace since the global financial crisis," IMF director of research Gita Gopinath said. The downgrade would have been even greater if not for the efforts by central banks in advanced and emerging economies to offset the effect of trade wars on their economies, the IMF said. "With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot," it warned. Without that intervention, global growth would have been 0.5 percentage point lower this year and next.
Both the US and China said they made progress in the latest round of talks in Washington on 10-11 October, but the negotiations' only tangible outcome was a delay in the US' planned increase in tariff rates on about half of imports from China. "We look forward to more details on the recent tentative deal reached between China and the US," Gopinath said.
The US was scheduled to increase tariffs on about half of imports from China to 30pc from 25pc today. Not moving forward with the hike would reduce the negative effect of the trade war on global GDP to 0.7 percentage point next year, from the 0.8 percentage point estimate the IMF cited last month, Gopinath said.
If the US decides not to proceed with the scheduled imposition of a 15pc tariff on the remaining volume of imports from China on 15 December, the negative effect on global GDP would be just 0.6 percentage point next year. The effect of trade war would be more prominently felt in China, with up to a 2 percentage point reduction in its GDP next year if all US tariffs go into effect, compared with up to a 0.6 percentage point decline in US GDP growth rate.
The IMF forecasts US GDP growth at 2.4pc this year and 2.1pc in 2020. It projects China's economy will grow by 6.1pc this year and 5.8pc next year.
The IMF lowered the 2019 forecast for almost every major advanced and emerging economy. "The global economy is in a synchronized slowdown," Gopinath said. India's economy is projected to grow by 6.1pc this year, a 0.9 percentage point reduction from the previous forecast. The eurozone economies are forecast to grow by 1.2pc this year, the same as the forecast for the UK. The forecast assumes that the UK will withdraw from the EU in an orderly fashion, under mutually agreeable terms. A "no-deal Brexit would reduce the level of GDP in the UK by 3-5pc in the next two years and by 3pc in the long run," Gopinath said.
The IMF cut Saudi Arabia's projected growth this year to 0.2pc this year, down from its previous 1.9pc estimate. It explains the downward revision by the weakness in oil prices and the extension of the Opec/non-Opec production restraint agreement. The effect of the 14 September attacks on Saudi oil facilities "is difficult to gauge at this stage but adds uncertainty to the near-term outlook," the IMF said.
It projects that Iran's economy will shrink by 9.5pc this year as a result of US sanctions on the country's oil sector. The IMF previously estimated the decline in Iran's GDP at 6pc this year.
Another target of US sanctions, Venezuela, is projected to see the decline in its GDP accelerate to 35pc this year, shrinking its economy to barely a third of the level in 2013.
