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World economy will slump to weakest growth in decade due to Trump’s trade war and Brexit, IMF forecasts

Fund says trade tensions and uncertainty around trade deals, including between UK and EU, must be resolved

Ben Chapman,Olesya Dmitracova
Tuesday 23 July 2019 16:30 BST
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The US imposed tariffs on around $200bn of Chinese imports in May and has also banned American firms from doing business with Huawei.
The US imposed tariffs on around $200bn of Chinese imports in May and has also banned American firms from doing business with Huawei. (Getty)

Global economic growth will slow this year to the weakest rate in a decade, the International Monetary Fund has said, blaming Donald Trump’s trade war with China, Brexit uncertainty and geopolitical tensions.

The IMF has downgraded its last forecasts, compiled in mid-March, and now expects growth of 3.2 per cent in 2019 and 3.5 per cent 2020.

There is a risk that even these lower forecasts prove to be too optimistic, the organisation said in its World Economic Outlook report published on Tuesday. One reason growth could be worse is an escalation in the US-China trade dispute, it added.

The US imposed tariffs on around $200bn of Chinese imports in May and banned American firms from doing business with Huawei, citing concerns that the Chinese company’s equipment could allow spying by Beijing on US citizens.

The IMF said there is a “pressing need” to resolve trade tensions and dispel the uncertainty around trade agreements, including between the UK and the EU.

“Specifically, countries should not use tariffs to target bilateral trade balances or as a substitute for dialogue to pressure others for reforms,” the report stated.

Gita Gopinath, the IMF’s chief economist, stressed that point at a press conference, saying: “The need for global cooperation is urgent.”

The fund has also updated its forecasts for the UK. It predicts growth of 1.3 per cent this year – compared with 1.2 per cent forecast earlier – and 1.4 per cent in 2020, as before.

However, this is based on the assumption of an orderly Brexit with a transition period. The forecasts were produced before Boris Johnson was named as the new UK prime minister, raising the risk of a no-deal Brexit. Mr Johnson has vowed to take Britain out of the EU in October with or without a deal.

The IMF’s outlook for the world economy broadly chimes with forecasts by the UK’s National Institute of Economic and Social Research, released on Monday. NIESR predicted growth of around 3.25 percent this year and 3.4 next year, both down from 3.6 per cent in 2018.

But NIESR was more pessimistic than the IMF about Britain’s prospects, seeing growth of 1.2 per cent in 2019 and 1.1 per cent in 2020, provided a no-deal Brexit is avoided.

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