Earlier projections now appear to be “over-optimistic” given that risks from “further disruptions in trade policies” have become more prominent, said Maurice Obstfeld, IMF chief economist, in a prepared speech.
“Two major regional trade arrangements are in flux — NAFTA (where a new trilateral agreement awaits legislative approval) and the European Union (with the latter negotiating the terms of Brexit). U.S. tariffs on China, and more broadly on auto and auto part imports, may disrupt established supply chains, especially if met by retaliation,” he said.
“The impacts of trade policy and uncertainty are becoming evident at the macroeconomic level, while anecdotal evidence accumulates on the resulting harm to companies. Trade policy reflects politics, and politics remain unsettled in several countries, posing further risks,” he added.
The fund also cut its forecasts for global trade volume: The total good and services flow is expected to grow by 4.2 percent this year and 4 percent next year — down 0.6 and 0.5 percentage points, respectively, from earlier estimates.
And the two economies in the center of the ongoing tariff fight — the U.S. and China — are also expected to grow slower than initially projected. The IMF maintained that the U.S. and China will grow by 2.9 percent and 6.6 percent, respectively, this year but said both would slow more than expected to 2.5 percent and 6.2 percent, respectively, in 2019.