IMF Warns Of Tariff War Impact As Global Growth Projections Slashed

(RTTNews) - The International Monetary Fund slashed the global growth forecasts for this year and next on Tuesday, citing the potential impact of the trade tariffs imposed by U.S. President Donald Trump and cautioned against significant adverse effect on the world economy if the current trade tensions persist.

Global economy is set to grow 2.8 percent this year and 3.0 percent next year, the IMF said in its latest World Economic Outlook report. That is significantly less than the 3.3 percent expansion that the lender projected for both years in January.

The forecast includes tariff announcements between February 1 and April 4 by the U.S. and countermeasures by other countries, the IMF said. The world economy is projected to grow at a rate much below the historical 2000-19 average of 3.7 percent, the report said.

"The global economic system under which most countries have operated for the last 80 years is being reset, ushering the world into a new era," IMF chief economist Pierre-Olivier Gourinchas said in his blog.

Referring to the trade tariff policy of the Trump administration, Gourinchas said the U.S. effective tariff rate surged past levels reached during the Great Depression while counter-responses from major trading partners significantly pushed up the global rate.

"The resulting epistemic uncertainty and policy unpredictability is a major driver of the economic outlook," the economist said. "If sustained, this abrupt increase in tariffs and attendant uncertainty will significantly slow global growth."

The U.S. growth forecast for this year was sharply cut by 0.9 percentage points to 1.8 percent due to greater policy uncertainty, trade tensions, and softer demand momentum. Growth is expected to slow further to 1.7 percent next year. Eurozone is projected to expand 0.8 percent this year, which is slower than the 1.0 percent forecast in January. The growth forecast for euro area for next year was trimmed to 1.2 percent from 1.4 percent. The biggest euro economy and the export hub of the bloc - Germany, is projected to stagnate this year after a contraction last year.

China's GDP growth forecast for this year was lowered to 4.0 percent from 4.6 percent on account of the impact of recently implemented tariffs and fiscal expansion in the budget. The projection for next year was downgraded to 4.0 percent from 4.5 percent due to the prolonged trade policy uncertainty and the existing tariffs.

India's growth forecast for this year was lowered by 0.3 percentage points to 6.2 percent due to trade tensions and global uncertainty. However, growth is seen relatively more stable, underpinned by private consumption, especially in rural areas. The projection for next year was trimmed to 6.3 percent from 6.5 percent.

The IMF revised up the global inflation forecast by about 0.1 percentage point to 4.3 percent this year and 3.6 percent next year, but expects the disinflation momentum to continue.

The inflation forecast for the U.S. was raised by 1.0 percentage point to reflect stubborn price dynamics in the services sector as well as a recent uptick in the growth of the price of core goods excluding food and energy and the supply shock from recent tariffs, the report said.