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IMF Revists its World Economic Outlook, Asia to Grow at 6.3 per cent

'China's growth slowdown could be faster than expected especially if trade tensions continue, and this can trigger abrupt sell-offs in financial and commodity markets as was the case in 2015–16'

The International Monetary Fund revised its World Economic Outlook (WEO) forecast for the second time within a span of six months. It now projects that the global economy will grow at 3.5 per cent in 2019 and 3.6 per cent in 2020.

In the October WEO, IMF revised its projects and said the global economy will grow at a pace of 3.7 per cent in 2019 and 2020 citing negative effects of tariff increases enacted in the US and China earlier in the year along with carryover of softer momentum in the second half of 2018 and other global events such as Germany introducing new automobile fuel emission standards, Italy’s concerns about sovereign and financial risks, etc.

Outlook for Asia

Coming to emerging and developing Asia, IMF noted that growth will dip from 6.5 per cent in 2018 to 6.3 per cent in 2019 and 6.4 per cent in 2020.

“Despite fiscal stimulus that offsets some of the impact of higher US tariffs, China’s economy will slow due to the combined influence of needed financial regulatory tightening and trade tensions with the United States,” IMF said in a statement.

For India, the economy is poised to pick up in 2019 thanks to lower oil prices and a slower pace of monetary tightening as inflation has started to ease.

Concerns Related US-China Trade War

In 2018, the Chinese economy slowed down because of financial regulatory tightening. The move was intended to check shadow banking activity and off-budget local government investment, however, also resulted in widening the trade dispute with the US. By the end of the year, the situation further downgraded.

“The authorities have responded to the slowdown by limiting their financial regulatory tightening, injecting liquidity through cuts in bank reserve requirements, and applying fiscal stimulus, by resuming public investment. Nevertheless, the activity may fall short of expectations, especially if trade tensions fail to ease,” IMF’s statement pointed out.

While on the other side, on 1st of December US-China announced a 90-day truce on tariff increase, which the international trade body welcomed and said could lead to ‘de-escalating trade friction’.

Having said that, the truce period ends on 1st March and the final outcome of trade war is still anticipated until then global trade, investment, and output will continue to remain under threat from policy uncertainty and other ongoing trade tensions.

“China’s growth slowdown could be faster than expected especially if trade tensions continue, and this can trigger abrupt sell-offs in financial and commodity markets as was the case in 2015–16, ” Gita Gopinath, Economic Counsellor and Director of Research of the International Monetary Fund (IMF) wrote in her blog.

Additionally, failure to resolve this issue will further lead to tariff barriers resulting in higher costs of imported intermediate and capital goods and higher final goods prices for consumers.
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