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Financial News: IMF Cuts China Growth Forecast On Trade Tensions

IMF Cuts China Growth Forecast On Trade Tensions

06/05/2019 - 09:04:00 (RTTNews)

(RTTNews) - The International Monetary Fund on Wednesday cut China's growth forecast for this year and next, citing downside risks and high uncertainty surrounding trade tensions, and said more policy easing may be needed if the conflict escalates.

The lender lowered the growth forecast for this year to 6.2 percent from 6.3 percent seen in April.

The projection for next year was trimmed to 6 percent from 6.1 percent. On conclusion of the IMF staff Article IV mission to China, the lender said it expects China's growth to gradually slow to 5.5 percent by 2024, as the economy moves towards a more sustainable growth path.

"The near-term outlook remains particularly uncertain given the potential for further escalation of trade tensions," IMF's First Deputy Managing Director David Lipton said. Renewed trade tensions are a significant source of uncertainty, hurting sentiment, the IMF pointed out. That said, the Chinese government's planned policy stimulus can partially offset the negative impact from higher tariffs imposed by the US on $200 billion of Chinese exports, the lender noted.

"The policy stimulus announced so far is sufficient to stabilize growth in 2019/20 despite the recent US tariff hike," Lipton said.

"However, if trade tensions escalate further, putting at risk economic and financial stability, some additional policy easing would be warranted," he added.

The IMF official urged the US and China to quickly resolve the trade tensions through a comprehensive deal that supports the international system and avoids managed trade.

Last week, the World Bank trimmed China's growth forecast for next year to 6.1 percent from 6.2 percent, while maintaining the projection for this year at 6.2 percent. The lender slashed the global growth outlook for this year to a three-year low of 2.6 percent on Wednesday, citing weaker-than-expected trade and investment amid escalating disputes. Growth is projected to gradually rise to 2.7 percent in 2020 and to 2.8 percent in 2021.

This week, Morgan Stanley warned that the global economy could slip into recession in nine months if the Donald Trump administration pushes ahead with a 25 percent hike in tariffs on the final US$300 billion of Chinese imports and triggers retaliation from China.

And, economists at Goldman Sachs predicted that the likelihood of the US following through its threat of slapping tariffs on the final $300 billion of Chinese imports has risen to 60 percent from 40 percent.

Goldman Sachs economists also expect further escalation as both sides add tariff and non-tariff measures.

In May, the US raised the tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent. China retaliated by raising tariffs on $60 billion worth of imports from the US.

On Sunday, the China government released a white paper where it claimed that the country does not want a trade war, but is not afraid of one and was ready to fight if necessary, the state-run news agency Xinhua reported.

The US began imposing trade tariffs on Chinese imports last year and Beijing retaliated with similar measures. However, the spat does not end with just raising tariffs.

Several Chinese firms, the most prominent being the telecom giant Huawei, have been targeted by the US.

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