IMF lowers global growth forecast, warns of trade, geopolitical tensions

Amid ongoing trade tensions, the IMF in its new WEO report lowered U.S. growth forecast for 2019 to 2.4 percent, down 0.2 percentage point from an earlier projection, while downgrading China's growth forecast for this year to 6.1 percent, down 0.1 percentage point from the previous projection.

The global lender recently estimated that the U.S.-China trade tensions will cumulatively reduce the level of global GDP by 0.8 percent by 2020, taking into account the proposed tariff hikes scheduled for Oct. 15 and Dec. 15. If these tariffs were never to happen, Gopinath said, that would bring down the estimated negative impact on global GDP from 0.8 percent to 0.6 percent.

The two countries, as the world's two largest economies, have "joint responsibilities" for the global economy and global institutions, and thus "we should manage those (differences) in a prudent manner," Allen said.

"The results are clear. Everyone loses in a trade war," said Georgieva. "So we need to work together, now, and find a lasting solution on trade."

NO ROOM FOR POLICY MISTAKES

Aside from trade tensions, Gopinath also highlighted geopolitical tensions as another downside risk to global growth, warning that Brexit-related risks could further disrupt economic activity, and derail an already fragile recovery in emerging market economies and the euro area.

The global outlook "remains precarious" with a synchronized slowdown and uncertain recovery, Gopinath said. "At 3 percent growth, there is no room for policy mistakes and an urgent need for policymakers to support growth," she said.

"To rejuvenate growth, policymakers must undo the trade barriers put in place with durable agreements, rein in geopolitical tensions, and reduce domestic policy uncertainty," said the IMF chief economist.

According to IMF's assessment, in the absence of monetary stimulus, global growth would be lowered by 0.5 percentage point in both 2019 and 2020. Gopinath, however, said that monetary policy cannot be the only game in town. "It should be coupled with fiscal support where fiscal space is available, and policy is not already too expansionary," she said.

While monetary easing has supported growth, she said, "it is essential that effective macroprudential regulation be deployed today to prevent mispricing of risk and excessive buildup of financial vulnerabilities."

For sustainable growth, Gopinath said, it is important that countries undertake structural reforms to boost productivity, improve resilience and reduce inequality.

"The global trading system needs to be improved, not abandoned," she said.

"Countries need to work together because multilateralism remains the only solution to tackling major issues, such as risks from climate change, cybersecurity risks, tax avoidance and tax evasion, and the opportunities and challenges of emerging financial technologies," she stressed.

Editor: John Li