The International Monetary Fund has cut its growth forecast for the global economy in 2018 and 2019, citing rising international trade tensions and higher oil prices.
The fund forecast that the U.S. economy would grow at 2.9% in 2018, but it said that rate would slow to 2.5% in 2019. “U.S. growth will decline once parts of its fiscal stimulus go into reverse,” said IMF Chief Economist Maurice Obstfeld.
The IMF forecast China’s 2018 growth rate at 6.6%, slowing to 6.2% next year. It cut its global growth assessment by two percentage points, to 3.7%, for this year and next year.
Obstfeld said recent data show weakening in trade, manufacturing, and investment.
“The impacts of trade policy and uncertainty are becoming evident at the macroeconomic level, while anecdotal evidence accumulates on the resulting harm to companies,” Obstfeld said. “Trade policy reflects politics, and politics remain unsettled in several countries, posing further risks,” he added.
Obstfeld said earlier projections now appear to be “over-optimistic” given that risks from “further disruptions in trade policies” have become more prominent.
The Federal Reserve will raise interest rates this December and then four times next year, the IMF predicted, bringing the federal funds rate above 3% by the end of 2019.
It said tax cuts would continue to support the U.S. economy until 2020. When the stimulus ends, and as China’s growth slows, “global growth is set to moderate.”
The core personal-consumption expenditure price index, the preferred measure for inflation, would rise to 2.3% in 2019 and then gradually decline to 2% thereafter, the IMF projected.
The fund also cut near-term growth in the euro area, South Korea, the United Kingdom, Argentina, Brazil, Mexico, Iran, and Turkey.
The Dow Jones Industrial Average fell in early trading on the news Tuesday, but rebounded by midday.