International Monetary Fund warns of looming risks to global economy

IMF chief economist Maurice Obstfeld

The IMF expects the USA economy to continue growing this year at 2.9%, but sees that rate falling to 2.5% next year amid the country's escalating trade war with China.

The IMF said the balance of risks was now tilted to the downside, with a higher likelihood that financial conditions will tighten further as interest rates normalize, hurting emerging markets further at a time when USA -led demand growth will start to slow as some tax cuts expire.

"The government has chose to approach the International Monetary Fund for stabilisation and an economic recovery programme", said the Finance Ministry in a statement after the stock market suffered an over 1,300-point plunge, losing nearly 270 billion Pakistani rupees ($2 billion) of its capitalisation - the highest single-day loss in a decade.

Christine Lagarde, the IMF director during her opening remarks at the 2018 IMF/World Bank annual press conference Thursday in Bali Indonesia said, economies will need stronger worldwide cooperation because the global economy is strong, but it probably is not strong enough.

Trump has levied or threatened tariffs on goods from economies around the world, notably China, but also on traditional allies such as the European Union.

The slowdown has been caused predominantly by the world's two largest economies - the United States and China - engaging an increasingly damaging trade war.

Growth estimates for the euro area and Britain also was revised down.

The IMF announced it had reduced its outlook on the global economy to a 3.7% growth rate for this year and next, down 0.2% from what it had originally predicted in July. "This is the United States trying stop China's growth - it's a bad idea", Sachs, director of the Center for Sustainable Development at Columbia University, told a seminar in Bali.

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Overall, global growth will remain steady - about 3.7 percent this year - and exceed that of 2012-2016.

Obstefeld commented: "Last April, at the time of our last World Economic Outlook, the world economy's broad-based momentum led us to project a 3.9 percent growth rate for both this year and next".

It said that the composition of spending and revenues should be growth friendly and protect the most vulnerable.

The Swiss figures go against the current global economic growth trend, which the International Monetary Fund has reduced from its previous estimate of 3.9% to 3.7% for 2018 and 2019.

"An intensification of trade tensions and the associated further rise in policy uncertainty could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade", the report said.

Fed rate hikes are already increasing pressure on emerging market economies by fuelling an outflow of capital as investors seek higher returns.

United States stimulus also adds to the "already-unsustainable" debt and deficit that will undercut future growth, the report warns.

Growth is projected to slow to 6.6 percent this year and 6.2 percent in 2019, a downgrade of 0.2 percentage points.

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