Published: Thu, October 11, 2018
Finance | By Kristine Clayton

US, China trade war could dent economic growth

US, China trade war could dent economic growth

Iran's economy is now forecast to contract this year and especially in 2019, by 3.6 percent, "on account of reduced oil production, before returning to modest positive growth in 2020-23", according to the International Monetary Fund.

This is down from its July forecast of 3.9 percent growth for both years.

The rupiah has indeed been under strong downward pressure, especially over the last three months, as a result of monetary tightening and stronger economic growth in the USA, which has caused higher capital outflows, and the upward trend in worldwide oil prices, which has increased Indonesia's trade deficit and consequently the current account deficit to more than 2.5 percent of gross domestic product (GDP).

But it predicts that US growth will slow to 2.5 percent next year as the effect of recent tax cuts wears off and as President Donald Trump's trade war with China takes a toll.

"It also expects the economy to grow 1.4 per cent in 2019, down from a previous estimate of 1.7 per cent".

Lagarde's comments came as a global market sell-off rolled on following Trump's comments, underscoring rising financial volatility that the International Monetary Fund will address at its annual meetings this week in Bali.

India hopes to secure a waiver from USA sanctions on Iran before they take effect on November 4, as it had significantly cut Iranian oil imports before the deadline, officials said on Monday...

Maurice Obstfeld, IMF's chief economist and director of research said whatever affects the three major economies will affect the whole region as majority of the countries relies on their trajectories.

But the USA organisation's study stresses that despite the Brexit uncertainty, banks are still safer now than they were in 2008 after the financial crisis.

'Strong growth over the summer is likely to reassure policymakers that the recent interest rate rise was warranted, but they'll be hoping to see the momentum maintained as Brexit approaches.

As Washington and Beijing trade tariffs, economic growth is slowing for both countries and others.

More broadly, given continued monetary policy normalisation in advanced economies and escalating trade tensions, policy makers in emerging-market economies should be prepared to face portfolio flow reversals, said the IMF. The group recently downgraded global growth forecasts.

"Iran and Russian Federation, both faced with USA sanctions, have devised plans to increase trade interaction and ease mercantile regulations", Iran's state-run Tasnim News Agency added. "It's so tight. I think the Fed has gone insane", the USA president said.

China, however, could still be labelled a currency manipulator if the US Treasury decides to rely more heavily on the older 1988 Act, which allows for a more subjective assessment of whether a currency is being manipulated to gain unfair competitive advantage in trade.

In the United States, momentum is still strong as fiscal stimulus continues to increase, but the forecast for 2019 has been revised down due to recently announced trade measures, including the tariffs imposed on $200 billion of USA imports from China. The government has already hiked gas tariff on average by 35 percent and more could follow.

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