Trade war could cut China’s growth by nearly 2 per­cent­age points over two years: IMF

Tehran Times - - ECONOMY -

At its worst, the on­go­ing trade ten­sions could knock 1.6 per­cent­age points off China’s eco­nomic growth over the first two years, ac­cord­ing to an anal­y­sis by the In­ter­na­tional Mone­tary Fund.

The assess­ment took into ac­count all cur­rent and pro­posed tar­iffs on Chi­nese goods that en­ter the U.S., as well as knockon ef­fects the trade ten­sions have on in­vestor con­fi­dence and fi­nan­cial mar­kets. But much of that im­pact is ex­pected to be off­set by the Chi­nese govern­ment’s poli­cies to stim­u­late the econ­omy, noted Changy­ong Rhee, di­rec­tor of the IMF’s Asia and Pa­cific Depart­ment.

The anal­y­sis was pub­lished on Fri­day in the IMF’s Re­gional Eco­nomic Out­look re­port fo­cus­ing on the Asia Pa­cific re­gion.

Rhee told re­porters that di­rect eco­nomic im­pact from the tar­iff fight be­tween the U.S. and China is ac­tu­ally “quite small.” What’s more detri­men­tal is the hit to in­vestor con­fi­dence, which has rat­tled fi­nan­cial mar­kets and is likely to last for a while, he said.

“This is one of the rea­sons why we feel that head­winds may last longer,” Rhee said. “I don’t know what will be the end ... I think the lessons we have taken is how much the global fi­nan­cial mar­kets and real econ­omy are well in­te­grated, no one can be free from such shocks.”

“In the end, there will be no win­ner from the global trade war,” he said in Bali, In­done­sia where the IMF and the World Bank are hold­ing their an­nual meet­ings.

The U.S. has im­ple­mented ad­di­tional tar­iffs on around $250 bil­lion worth of Chi­nese goods that en­ters its bor­ders, and China has re­tal­i­ated with ex­tra levies on roughly $110 bil­lion of im­ports from the U.S.

Pres­i­dent Don­ald Trump’s ad­min­is­tra­tion has said that it would tar­get an­other $267 bil­lion of Chi­nese prod­ucts, which is nearly all of its re­main­ing im­ports from the Asian gi­ant.

The tit-for-tat tar­iffs be­tween the world’s two largest economies has hit in­vestor con­fi­dence. This week, re­newed wor­ries about the global econ­omy — weighed down by trade ten­sions — led to a sell-off in global mar­kets. Chi­nese stocks have been among the worst hit, hav­ing de­clined more than 20 per­cent this year.

The IMF ear­lier this week down­graded growth fore­casts for the global econ­omy for 2018 and 2019, and China hasn’t been spared.

The world’s sec­ond-largest econ­omy is ex­pected to grow at 6.6 per­cent this year — main­tain­ing an ear­lier fore­cast, but its es­ti­mated growth next year has been low­ered by 0.2 per­cent­age points to 6.2 per­cent, ac­cord­ing to the re­port. Without the re­cent steps taken by Chi­nese au­thor­i­ties, the Asian gi­ant’s growth prospects could be even lower amid the es­ca­lat­ing trade ten­sions with the U.S., the IMF said in the re­port.

China’s cen­tral bank has cut the amount of re­serves held by Chi­nese banks four times this year, which have helped to stim­u­late eco­nomic ac­tiv­ity. But do­ing so may de­lay China’s struc­tural re­forms, the IMF noted in the re­port.

“Macro poli­cies in China have been fo­cused on ad­dress­ing the econ­omy’s sig­nif­i­cant and long­stand­ing fi­nan­cial vul­ner­a­bil­i­ties, but the shift to­ward sta­bi­liz­ing growth may mean slower progress on delever­ag­ing and thus height­ened medi­umterm risks for China and the en­tire re­gion,” the re­port said.

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