US, China trade war could dent economic growth

PM Imran Khan chairing the Punjab cabinet meeting. — PTI

The benchmark US 10-year Treasury yield climbed to its highest since May 2011 on Tuesday.

"Although the International Monetary Fund forecast is lower than Government projections, it has observed that there is something happening", said an analyst with a local research firm.

The global organisation warned a full-blown trade war between the USA and China could have wider implications for the financial growth around the world.

"There are clouds on the horizon".

Maurice Obstfeld, the IMF's chief economist, said at a media briefing about the fund's latest World Economic Outlook: "When you have the world's two largest economies at odds, that's a situation where everyone suffers".

The IMF warned that the world faced a permanent hit to growth if the United States followed through on a threat to impose a 25% on all imported cars, and global tariffs hit business confidence, investment and borrowing costs.

On Sunday Pakistan's Prime Minister Imran Khan hinted at approaching the IMF, saying: "We may approach the IMF for support to the country's financial problems", but he insisted on looking toward other countries: "We have requested three countries to deposit funds in the State Bank of Pakistan that would boost the country's foreign exchange reserves". The Nasdaq composite lost 0.7 percent to 7,735.95.

The IMF's cut to its outlook was broad-based. It said the global economy will grow 3.7 percent this year, the same as in 2017 but down from the 3.9 percent it was forecasting for 2018 in July.

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China's central bank fixed its yuan rate at 6.9019 per dollar on Tuesday, so breaching the 6.9000 barrier and leading speculators to push the dollar up to 6.9120 in the spot market.

That includes President Donald Trump´s imposition of tariffs on $250 billion in Chinese goods, as well as on aluminum, steel and other products worldwide.

The IMF projections don't take into account Trump's threat to expand the tariffs to effectively all of the more than US$500 billion in goods the USA bought from China previous year. The Shanghai Composite index recovered its losses by 0.2 per cent to 2,721.01, after tumbling 3.7 per cent on Monday.

Nonetheless, despite trade tensions and continued monetary policy normalisation in a few advanced economies, global financial markets have remained buoyant and appeared complacent about the risk of a sudden, sharp tightening in financial conditions, the world body said.

"Growth performance varies, however, across countries".

If the projections are true, then India will regain the tag of the fastest growing major economies of the world, crossing China with more than 0.7 percentage point in 2018 and an impressive 1.2 percentage point growth lead in 2019.

The IMF said its forecast for investment growth for FY19 is weaker than in April, despite higher capital spending in India, on account of contracting investment in economies under stress, such as Argentina and Turkey, which is also reflected in a downward revision for import growth.

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