Indonesia: Trade tensions will trim global growth, says IMF
NUSA DUA, Indonesia (The Straits Times/ANN) - It expects expansion of 3.7% this year and next, 0.2 percentage point lower than earlier forecast.
The International Monetary Fund has cut its forecast for global growth as trade tensions intensify and currency and other woes impact emerging economies.
The global lender projects that the world economy will expand by 3.7 per cent this year and next, 0.2 percentage point lower than its previous forecast six months ago.
IMF chief economist Maurice Obstfeld said at the launch of its World Economic Outlook that due to recent developments, this past projection has proven to be "over-optimistic".
"There are clouds on the horizon," he said. "Growth has proven to be less balanced than we had hoped."
The IMF, which with the World Bank is holding its annual meetings in Bali this week, cited escalating tensions between the world's two largest economies over trade tariffs, slower export growth in the euro zone, higher oil prices, and China's regulatory tightening in its property and financial sectors as factors hampering global growth.
The United States has imposed tariffs on US$200 billion worth of imports from China, attracting retaliatory tariffs from China in return.
The IMF had earlier estimated that escalating tit-for-tat tariffs could lower global output by more than 0.8 per cent by 2020. The two economies at the heart of the tariff fight are expected to feel the pain.
The IMF expects the US economy to grow by 2.9 per cent and China's by 6.6 per cent this year. But it said that both would slow down more than earlier envisaged, and see growth of just 2.5 per cent and 6.2 per cent, respectively, next year.
This would mark China's weakest growth since 1990 and the impact could be harsher - a decline of 1 percentage point or more - if a worst-case trade war scenario were to materialise.
But there is room to be upbeat, the IMF said, citing favourable projections for emerging economies in Asia and Europe.
Dr Obstfeld also expects Indonesia to turn in "fairly strong" growth, despite the weakening rupiah.
President Joko Widodo clarified that the delegates attending the event are not sponsored by the Indonesian government.
The IMF had, in a publication last week, noted that South-east Asia's largest economy has also undergone dramatic transformation since the Asian financial crisis 20 years ago and boosted its fundamentals.
Jakarta expects the economy to grow by 5.2 per cent this year and 5.3 per cent next year, given external pressures.
However, Bank Indonesia's senior deputy governor Mirza Adityaswara said that despite the stronger fundamentals, the economy still faces a widening current account deficit.
The authorities expect it to reach US$25 billion this year. "We need to close the gap," he noted, stressing the need for policies to attract more foreign direct investment.
Meanwhile, Dr Obstfeld is concerned that several economies have adopted policies that are "unsustainable over the longer term" to boost growth. The US has also raised its key interest rates several times since 2016.
"Broadly speaking, we see signs of lower investment and manufacturing, coupled with weaker trade growth," Dr Obstfeld said.
He called on countries to ensure inclusive growth, which he said was "more important than ever".
Such growth can be supported by a multilateral approach to politics and policies, he added.
Detailed forecasts on specific regions are also set to be launched this week, when 34,000 participants from 189 countries gather to discuss key issues from financial inclusion to human development.
Indonesia has also convened an Asean leaders' gathering, and as Singapore is this year's Asean chair, Prime Minister Lee Hsien Loong will co-chair discussions on Wednesday with President Joko Widodo on achieving sustainable development goals and bridging the development gap.
PM Lee, Deputy Prime Minister Teo Chee Hean and eight other ministers will also be in Bali for the Singapore-Indonesia Leaders' Retreat on Wednesday, during which several agreements will be signed to strengthen cooperation on investment, higher education and human resources, among others.