Published: Wed, October 10, 2018
Economy | By

US, China trade war could dent economic growth

US, China trade war could dent economic growth

The warning comes as finance ministers and central bankers from the IMF's 189 member nations prepare to meet this week in Bali, Indonesia for the annual meetings of the fund and its sister institution, the World Bank.

The US will also see its growth "decline" once its fiscal stimulus, delivered through wide-ranging tax cuts "goes into reverse" according to Mr Obstfeld.

The International Monetary Fund has downgraded SA's GDP expansion forecast for 2018, joining the World Bank and the SA Reserve Bank in lowering growth projections.

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

The Federal Reserve, the USA central bank, has raised short-term US rates three times this year as the American economy gains strength more than nine years after the end of the Great Recession.

"Securing US approval on the IMF Executive Board will require Pakistan to strike a fine geopolitical balance between the Trump administration's concerns over China's growing economic engagement in Pakistan and the country's bilateral commitments", said Bilal Khan, a senior economist at Standard Chartered Plc.

"Notwithstanding the present demand momentum, we have downgraded our 2019 U.S. growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China's retaliation".

Earlier, the Asian Development Bank (ADB) announced that it will provide $7.1 billion in financing to help Pakistan achieve inclusive and sustainable growth over the next three years.

It left 2018 growth forecasts for the two countries unchanged at 2.9% for the United States and 6.6% for China.

It left 2018 growth forecasts for the two countries unchanged at 2.9 percent for the US and 6.6 percent for China. It now expects the global economy to only expand by 3.7% in 2018 and 2019, down from 3.9% before.

Pakistan's government had previously said seeking help from the International Monetary Fund was the last option and would prefer succour from friendly nations, widely interpreted as a reference to traditional allies China and Saudi Arabia. "Any sharp reversal for emerging markets would pose a significant threat to advanced economies", he added.

The IMF warned that China's growth even risked declining by a full percentage point by next year in the event of a "worse-case" scenario, involving further tariffs coupled with a collapse in confidence by businesses and markets.

Further moves towards a trade war could "significantly harm global growth".

The London-based Capital Economics think-tank said last week that revenues of Saudi Arabia and the five other Gulf states are expected to rise by $200 billion this year compared to 2017 due to high oil prices and output. U.S. President Donald Trump has frequently accused China of manipulating its currency for a trade advantage.

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