International Monetary Fund chief defends rate hikes after Trump slams 'crazy' Fed

Finance Minister Asad Umar says decision is taken after consulting leading economists

The ongoing trade war between the USA and China could start having material effects on the economies of both countries within the coming years, according to new projections from the International Monetary Fund (IMF).

The IMF said in an update to its World Economic Outlook it was now predicting 3.7 percent global growth in both 2018 and 2019, down from its July forecast of 3.9 percent growth for both years.

The body now expects the USA economy to grow at a rate of 2.5 percent in 2019, a 0.2 percentage point decline from its April estimates.

"Beyond the next couple of years, as output gaps close and monetary policy settings continue to normalise, growth in most advanced economies is expected to decline to potential rates - well below the averages reached before the global financial crisis of a decade ago", the report said.

Lagarde spoke as a global market sell-off rolled into Asia following Trump's comments, underscoring the rising financial volatility that the International Monetary Fund will address at its annual meetings with the World Bank this week in Bali.

Last year, China shipped goods worth $375 billion more to the USA than it took in from the United States, a figure Trump has often said he wants to curb sharply in an effort to promote American businesses.

The IMF warned that China's growth even risked declining by a full percentage point by next year in the event of a "worse-case" scenario, involving further tariffs coupled with a collapse in confidence by businesses and markets.

The gradual hikes by the US Federal Reserve has magnified fissures in vulnerable emerging market economies affecting countries like Argentina and Turkey, already grappling with existing economic woes.


The IMF has also revised down its forecast for Indonesia's growth.

Global trade tensions would also have a bearing on the eurozone's 2018 growth forecast, which was cut to 2 percent from 2.2 percent previously. "However, it is projected to rise to 5.1 percent in 2019", the report said.

"Uncertainty over trade policy is prominent in the wake of United States actions (or threatened actions) on several fronts, the responses by its trading partners, and a general weakening of multilateral consultation on trade issues", the report said.

There's a 5 percent probability that emerging markets other than China could face debt-market outflows of at least $100 billion, on par with the capital flight during the financial crisis, the International Monetary Fund said. The report said that aggregate growth in the emerging market and developing economy group stabilised in the first half of 2018.

It also said Ghana's current account position will however remain negative though lower than before.

The Federal Reserve, the US central bank, has raised short-term USA rates three times this year as the American economy gains strength more than nine years after the end of the Great Recession.

Over the longer term the impact to the USA economy will be almost one percentage point, while to China it will be half that. Economists now say the chances of a recession in the United States are growing due to several factors, including trade tensions and mounting interest rates.

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