IMF significantly lowers growth forecasts due to U.S.-China trade war

The trade war initiated by United States President Donald Trump will put severe pressure on global economic growth. This prediction was made by the International Monetary Fund (IMF), who have also lowered their expectations for the Netherlands’ prospects.

The UN Organization for financial stability called it a “new age” for the global economic system. Despite this, the world is not heading towards a recession. The increase in inflation is expected to remain limited.

A significant delay in growth is expected to hit the U.S., the fund expects. There will probably only be 1.8 percent growth this year, almost a percentage point lower than the last estimation. China will also be affected significantly. The IMF thinks that the Chinese economy will grow by 4 percent, a drop of 0.6 percent. There were also significant changes in estimations for Mexico and the Middle East.

The numbers are expected to drop less significantly for Europe, and therefore, also the Netherlands. This is because the tariffs for the European Union are not at a relatively high level. The IMF is also expecting a significant increase in government expenditure, much of it probably going to bolster the Defense. This is meant to support the economy.

These predictions were eagerly awaited internationally. The IMF are basing their predictions on all the tariffs that were announced up to April 4. That means that the delays of 90 days for higher tariffs for many countries that was announced by the U.S. was not taken into account. The same thing goes for the latest tariff raises that the U.S and China leveled at each other.

The IMF was unable to calculate all the possible consequences for anything that was announced between April 5 and April 14. But the IMF did make a quick calculation. Keeping market unrest and other effects out of contention, the world economy would grow by 2.8 percent this year and 2.9 percent next year.

According to the IMF, this is quite comparable to the figures from the fully calculated scenario, although the growth figures may differ between countries.

The International Monetary Fund also warned that further correction in the financial market is still looming. They said this in their stability report, which was presented shortly after the new economic estimates.

According to IMF economist Tobias Adrian, the risks to global financial stability have increased significantly, and he also finds that asset valuations are still stretched.

Adrian has been saying for a while that the financial markets seem to be very optimistic with their valuations of stocks and obligations. This can lead to a significant drop in price with sudden economic shocks. This warning proved to be true recently when not only did the stocks drop significantly, but there was also a wave of selling U.S. government bonds.