• China
  • Economic Growth
  • Global Economy
  • Report
  • Eurozone Crisis
  • USA
October 31, 2018

Global Economy: Tariff war clouds recovery

  • The United States (US) Federal Reserve hiked policy rates by 25 basis points (bps) in September
  • The People’s Bank of China in October decided to cut its reserve requirement ratio by 100 bps in an effort to support the Chinese economy to lower financing cost and boost market sentiment
  • Crude oil prices surged 8.9% on-month in September on concern of US sanctions on Iran

The global economy broke through in 2017 after years of contraction. Soon, a synchronized recovery was underway, with the International Monetary Fund (IMF), in its October 2017 edition of the World Economic Outlook (WEO), upgrading the world growth forecast citing a broad-based cyclical upswing. But that was before rapidly tightening monetary policies, trade wars, geopolitical strife, and high crude prices threw a dampener on the global growth party for many countries. In its October 2018 update of the WEO, the IMF has revised down its global growth projection by 20 bps to 3.7% each for 2018 and 2019, stable compared with 2017. The revision owes to rising incidences of downside risks to the projections. Key among these are rising trade barriers and reversal of capital flows to emerging market economies with weaker fundamentals and higher political risk. While highlighting the risks, the IMF warns with shrinking excess capacity and mounting downside risks, many countries need to rebuild fiscal buffers and strengthen their resilience in an environment where financial conditions could tighten suddenly and sharply.