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Economic Update

2018/10/11

IMF Cuts Global Growth Forecasts

In its latest World Economic Outlook report, the International Monetary Fund (IMF) said that it expects global economic growth will remain steady at last year’s rate of 3.7% for 2018-19 (Figure 1). This projection, in fact, has been revised down from the April estimate of 3.9% for the next two years. As an institution so often viewed as being overly pessimistic, the IMF has admitted that it was over-optimistic when it made the previous projection.

Growth momentum in the United States is expected to remain strong, as fiscal stimulus, including tax cuts and public-spending hikes, continue to underpin the economy. However, the IMF has raised concerns about the escalation of the China-U.S. trade war, and revised down its growth forecast for 2019 by 0.2 percentage point.

Mainland China is expected to experience somewhat softer but still relatively strong growth in 2019. The IMF believes that Beijing could likely prevent a so-called hard landing of the economy with the help of supportive policies, but at the cost of prolonging internal financial imbalances. (The People’s Bank of China will lower the reserve requirement ratio for banks by one percentage point with effect from 15 October, in order to release a total of 1.2 trillion RMB, of which 750 billion RMB is estimated to be injected into the banking system. The cut will apply to large commercial banks, joint-stock commercial banks, city commercial banks, non-county rural commercial banks and foreign banks.)

With regards to the euro area, the IMF has reduced its growth estimates for the single currency bloc by 0.4 percentage point and 0.1 percentage point for 2018 and 2019 respectively, compared to its projections in April.

All in all, downside risks to global economic growth have increased over the past few months, with uncertainty over trade policy becoming a drag on consumption and investment. This is nothing new. But, unfortunately, the possibility of a mutually agreed settlement of the trade dispute between the Mainland and the U.S. remains remote.

 

 

 

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