International Monetary Fund warns of looming risks to global economy

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The ongoing trade war between the US and China could start having material effects on the economies of both countries within the coming years, according to new projections from the International Monetary Fund (IMF).

The global finance agency dropped its projection for world economic growth by two-tenths of a percentage point for both 2018 and 2019 to 3.7 percent, the first time it had trimmed its economic outlook in more than two years.

The body now expects the USA economy to grow at a rate of 2.5 percent in 2019, a 0.2 percentage point decline from its April estimates.

The projected economic growth of the sub-Sahara Africa from 3.1 percent this year to 3.8 percent in 2019 is not enough to create the needed jobs for the growing population of the region, the Fund added.

The fund expects United States economic expansion to peak at 2.9 per cent this year and start to slow down next year as the economic stimulus introduced in the wake of the 2008 global credit crisis begins to wind down and tariff impact begins to hurt. 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. Its forecast for China's 2018 GDP growth remains unchanged at 6.6%, while revised downward by 0.2 percentage points for 2019 to 6.2%.

The IMF talked about continued capital outflows from emerging market economies and pressure on exchange rates because of monetary normalisation in the US.

The eurozone's 2018 growth forecast was cut to 2.0 percent from 2.2 percent previously, with Germany particularly hard hit by a drop in manufacturing orders and trade volumes. "Should market participants start pricing in the possibility of protracted trade tensions, financial conditions could tighten significantly, increasing the tail risk to global growth and financial stability", the International Monetary Fund said. So, what you do see is that emerging market economies, which is where India is, there's a very fast buildup in private debt with a slowdown in the last two years, But India is basically steady.

The growth rate of United States for 2018 is 2.9 per cent and that of 2019 has been powered to 2.5 per cent.

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The UK economy, meanwhile, is expected to grow 1.4 percent this year and 1.5 percent in 2019 - falling behind nearly all of Europe, with the exception of heavily-indebted Italy.

"US growth will decline once parts of its fiscal stimulus go into reverse", Mr Obstfeld said in a statement.

While the IMF's outlook for the Chinese economy stayed at 6.6% this year, its forecast for next year of 6.2% represents the slowest growth rate the Asian country has seen since 1990.

Meanwhile, Dr Obstfeld is concerned that several economies have adopted policies that are "unsustainable over the longer term" to boost growth.

Core inflation, which excludes volatile items such as energy, will vary from country to country, it added.

While the damage from an all-out trade war wouldn't be catastrophic, slow growth can also pose problems.

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