IMF warns of rising risks to global growth amid trade tensions

In this file photo taken on April 17, 2018 Maurice Obstfeld, Economic Counsellor and Director of the Research Department at the IMF, holds a press briefing on the World Economic Outlook during the 2018 Spring Meetings of the International Monetary Fund and World Bank Group at IMF Headquarters in Washington, DC. (AFP)
Updated 16 July 2018
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IMF warns of rising risks to global growth amid trade tensions

  • Worsening trade confrontations pose serious risks to the outlook, the IMF said
  • The fund warns growth could be cut by a half point by 2020 if tariff threats are carried out

WASHINGTON: The global economy is still expected to grow at a solid pace this year, but worsening trade confrontations pose serious risks to the outlook, the International Monetary Fund said Monday.
The IMF’s updated World Economic Outlook (WEO) forecast global growth of 3.9 percent this year and next, despite sharp downgrades to estimates for Germany, France and Japan.
The US economy is still seen growing by 2.9 percent this year, and the estimate for China remains 6.6 percent, with little impact expected near term from the tariffs on tens of billions of dollars in exports the countries have imposed on each other so far.
“But the risk that current trade tensions escalate further — with adverse effects on confidence, asset prices, and investment — is the greatest near-term threat to global growth,” IMF Chief Economist Maurice Obstfeld said.
The fund warns growth could be cut by a half point by 2020 if tariff threats are carried out.
Although the global recovery is in its second year, growth has “plateaued” and become less balanced, and “the risk of worse outcomes has increased,” Obstfeld said in a statement.
The report comes as US President Donald Trump has imposed steep tariffs duties on $34 billion in imports from China, with another $200 billion coming as soon as September, on top of duties on steel and aluminum from around the world including key allies.
China has matched US tariffs dollar for dollar and threatened to take other steps to retaliate, while US exports face retaliatory taxes from Canada, Mexico and the European Union.
“An escalation of trade tensions could undermine business and financial market sentiment, denting investment and trade,” the IMF report said.
In addition, “higher trade barriers would make tradable goods less affordable, disrupt global supply chains, and slow the spread of new technologies, thus lowering productivity.”
The IMF said growth prospects are below average in many countries and urged governments to take steps to ensure economic growth will continue.
The fund said global cooperation and a “rule-based trade system has a vital role to play in preserving the global expansion.”
However, without steps to “ensure the benefits are shared by all, disenchantment with existing economic arrangements could well fuel further support for growth-detracting inward-looking policies.”
The sweeping US tax cuts approved in December will help the economy “strengthen temporarily,” but growth is expected to moderate to 2.7 percent for 2019.
And while the fiscal stimulus will boost US demand, is also will increase inflationary pressures, the WEO warned.
China’s growth also is seen slowing in 2019 to 6.4 percent.
After upgrading growth projections for the euro area in the April WEO, the IMF revised them down by two-tenths in 2018 to 2.2 percent, due to “negative surprises to activity in early 2018,” and another tenth in 2019 to 1.9 percent.
The estimates for Germany, France and Italy were cut by 0.3 points each, with Germany seen expanding by 2.2 percent this year and 2.1 percent in 2019. France’s GDP is expected to grow 1.8 percent and 1.7 percent.
Meanwhile, Britain is now forecast to grow 1.4 percent this year, 0.2 points less than the April estimate, and 1.5 percent in 2019.
Japan’s GDP is seen slowing to 1.0 percent this year, two-tenths less than previously forecast, “following a contraction in the first quarter, owing to weak private consumption and investment.” It should grow 0.9 percent the following year.
India remains a key drivers of global growth, but the GDP outlook was cut one-tenth for this year and three-tenths for next year to 7.3 percent and 7.5 percent, respectively.
Brazil saw an even sharper 0.5-point downward revisions from the April forecast, to 1.8 percent this year.


Oil mixed on tighter US outlook

Updated 21 August 2018
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Oil mixed on tighter US outlook

  • Traders said US markets were lifted by a tightening outlook for fuel markets in the coming months
  • The Iran supply cut may also be more than compensated for by production increases outside OPEC

SINGAPORE: Oil prices were mixed on Tuesday, with US fuel markets seen to be tightening while the Sino-US trade dispute dragged on international crude contracts.
US West Texas Intermediate (WTI) crude futures for September delivery were up 27 cents, or 0.4 percent, at 0306 GMT, at $66.70 per barrel. The contract expires on Tuesday.
The more active October futures were up 7 cents, or 0.1 percent, to $65.49 a barrel.
Traders said US markets were lifted by a tightening outlook for fuel markets in the coming months.
Inventories in the United States for refined products such as diesel and heating oil for this time of year are at their lowest in four years.
This is occurring just ahead of the peak demand period for these fuels, with diesel needed for tractors to harvest crops and the arrival of colder weather during the Northern Hemisphere autumn raising consumption of heating oil.
Outside the United States, Brent crude oil futures were somewhat weaker, trading at $72.18 per barrel, down 3 cents from their last close.
This followed the United States offering on Monday 11 million barrels of crude from its Strategic Petroleum Reserve (SPR) for delivery from Oct. 1 to Nov. 30.
The released oil could offset expected supply shortfalls from US sanctions against Iran, which will target its oil industry from November.
Because of the sanctions, French bank BNP Paribas said it expected oil production from the Organization of the Petroleum Exporting Countries (OPEC), of which Iran is a member, to fall from an average of 32.1 million barrels per day (bpd) in 2018 to 31.7 million bpd in 2019.
Still, traders said overall market sentiment was cautious because of concerns over the demand outlook amid the trade dispute between the United States and China.
A Chinese trade delegation is due in Washington this week to resolve the dispute, but US President Donald Trump told Reuters in an interview on Monday he does not expect much progress, and that resolving the trade dispute with China will “take time.”
The impact of the Iran sanctions is not yet clear.
China has indicated that it will continue to buy Iranian oil despite the US sanctions.
The Iran supply cut may also be more than compensated for by production increases outside OPEC.
BNP Paribas said non-OPEC output would likely grow by 2 million bpd in 2018 and by 1.9 million bpd next year.
“Depending on when pipeline infrastructure constraints are lifted in the US, non-OPEC supply growth by the end of 2019 may prove higher than currently assumed,” the bank said.
The search for new oil has increased globally in the last two years, with the worldwide rig count rising from 1,013 at the end of July 2016 to 1,664 in August 2018, according to energy services firm Baker Hughes.
The biggest increase was in North America, where the rig count shot up from 491 to 1,057 in the last two years.
How prices develop will also depend on demand.
“We see global oil demand growing by 1.4 million barrels per day in both 2018 and 2019,” BNP Paribas said, implying that global markets are likely to remain sufficiently supplied.