IMF Issues Dire Warning For Eurozone And Warns Trade Wars Set To Escalate

The International Monetary Fund (IMF) has warned Eurozone growth could be derailed by escalating trade wars and the threat of more tariffs on goods from the US.


The fund said it had cut its 2018 growth forecasts for Eurozone countries, including Britain, because of softer-than-expected first quarter performance coupled with tighter financial conditions due to political uncertainty.

It has now reduced the Eurozone’s growth forecast for this year from 2.4 percent to 2.2 percent, with Britain cut to 1.4 percent from 1.6 percent.

US President Donald Trump has continued to threaten the European Union with tariffs on a number of goods which has sparked fierce retaliation from trading partners.

The IMF said that if these threats are implemented, it could reduce annual global economic output by 0.5 percent from projections for 2020.

Based on its projections, the fund added this translated to almost $500 billion in lost annual output – the equivalent of eliminating an economy the size of Thailand.

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The reduction in output takes into account tariffs already imposed by the US on steel and aluminium, as well as an initial $34 billion in Chinese goods.

Other threatened actions, which include fresh tariffs on a further $200 billion in Chinese goods and a 25 percent global tariff on car imports, are also included.

Last month, IMF Director Christine Lagarde sent out a clear warning on the grave economic consequences that retaliation from trading partners like Canada and the EU could bring.

IMF chief economist Maury Obstfeld told a news conference: “The risk that current trade tensions escalate further with adverse effects on confidence, asset prices and investment is the greatest near-term risk to global growth.

“As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.”

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The IMF added in its latest World Economic Outlook update for this month: “The balance of risks has shifted further to the downside, including in the short term.

“The recently announced and anticipated tariff increases by the United States and retaliatory measures by trading partners have increased the likelihood of escalating and sustained trade actions.

“These could derail the recovery and depress medium-term growth prospects, both through their direct impact on resource allocation and productivity and by raising uncertainty and taking a toll on investment.

The IMF left its global economic growth forecasts unchanged at 3.9 percent for both 2018 and 2019 from its previous forecast issued in April.

These projections only take into account tariffs currently in force, so larger actions such as possible automotive tariffs were not included.


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