International Monetary Fund downgrades world economic outlook

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The IMF said the balance of risks was now tilted to the downside, with a higher likelihood that financial conditions will tighten further as interest rates normalize, hurting emerging markets further at a time when US -led demand growth will start to slow as some tax cuts expire.

At a meeting on the Indonesian island of Bali, the International Monetary Fund painted a cautious picture for the near future, saying trade tensions and rising debt levels could dent China and the USA - and leave developing economies especially vulnerable to sudden stresses.

"Notwithstanding the present demand momentum, we have downgraded our 2019 United States growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China's retaliation".

US President Donald Trump recently sanctioned tariffs on an additional Dollars 200 billion worth of Chinese goods, nearly 15 per cent of China's total exports to the US.

The report warned that growth "may have peaked in some major economies".

"Growth is now much more uneven" than six months ago, he told reporters.

It found that global GDP output under this scenario would fall by more than 0.8 percent in 2020 and remain roughly 0.4 percent lower in the long-term compared to levels without these effects, which "inflict significant costs to the global economy, especially through its impact on confidence and financial conditions".

It left 2018 growth forecasts for the two countries unchanged at 2.9 percent for the United States and 6.6 percent for China.

The fund urged governments to focus on policies that can share the benefits of growth more widely, helping counter the growing mistrust of institutions, and to avoid "protectionist reactions to structural change".

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Growth is projected to slow to 6.6 percent this year and 6.2 percent in 2019, a downgrade of 0.2 percentage points.

But the USA tax cuts and rising spending that have boosted growth, helping compensate for the impact of the growing trade conflict, could spark a sudden "inflation surprise", and in turn lead to faster-than-expected rise in U.S. interest rates, according to the fund.

Fed rate hikes are already increasing pressure on emerging market economies by fuelling an outflow of capital as investors seek higher returns.

United States stimulus also adds to the "already-unsustainable" debt and deficit that will undercut future growth, the report warns.

Over the medium term, growth is expected to gradually slow to 5.6 per cent as the economy continues to make the transition to a more sustainable growth path with continued financial de-risking and environmental controls, it noted.

Further out, China's economy is expected to slow gradually to 5.6% as the government shifts to "a more sustainable growth path" and addresses financial risks, the International Monetary Fund said.

"Owing to these changes, our global growth projections for both this year and next are downgraded to 3.7 per cent, 0.2 percentage point below our last assessments and the same rate achieved in 2017", the report said.

However, stimulus measures by Beijing are likely to soften the impact of the tariffs.

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