Business / Economy

IMF raises Japan growth forecast, cuts global estimate due to trade tension

Kyodo, Reuters

The International Monetary Fund forecast Monday that Japan’s economy will grow 1.1 percent this year, up 0.1 percentage point from its estimate in July due to the uptick in growth and domestic demand in the April-June quarter.

But in its latest World Economic Outlook, the IMF cut its global economic growth forecasts for 2018 and 2019, saying trade policy tensions and the imposition of import tariffs are taking a toll on commerce while emerging markets struggle with tighter financial conditions and capital outflows.

The IMF said 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.

With much of the U.S.-China tariff war’s impact to be felt next year, the fund cut its 2019 U.S. growth forecast to 2.5 percent from 2.7 percent, while it cut China’s 2019 growth forecast to 6.2 percent from 6.4 percent. It left 2018 growth forecasts for the two countries unchanged at 2.9 percent for the U.S. and 6.6 percent for China.

“In the United States, momentum is still strong as fiscal stimulus continues to increase, but the forecast for 2019 has been revised down due to recently announced trade measures, including the tariffs imposed on $200 billion of U.S. imports from China,” IMF report said.

“China and a number of Asian economies are also projected to experience somewhat weaker growth in 2019 in the aftermath of the recently announced trade measures,” it said. “Risks to global growth skew to the downside in a context of elevated policy uncertainty.”

Reflecting such sentiments, growth in trade of goods and services across the world was revised down 0.6 point from the July forecast to 4.2 percent in 2018 and 0.5 point to 4.0 percent in 2019, according to the report.

Citing the U.S. tariffs on China and Beijing’s retaliatory measures, as well as U.S. President Donald Trump’s plan to impose global automobile and parts tariffs, IMF chief economist Maurice Obstfeld said he regards “further disruption in trade policies” as major near-term downside risks.

“U.S. tariffs on China, and more broadly on auto and auto part imports, may disrupt established supply chains, especially if met by retaliation,” Obstfeld said.

The report said trade tensions and the associated rise in policy uncertainty “could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade.”

Among major U.S. trading partners, Japan and the European Union have won exemptions from the planned U.S. auto tariffs while respective trade negotiations with Washington are underway.

According to the IMF, Japan’s growth is projected to soften to 0.9 percent in 2019, unchanged from the July estimate.

“Japan’s medium-term prospects are impeded by unfavorable demographics and a trend decline in the labor force,” the report said.

Given a weaker than expected performance in the first half of this year, the growth estimates for the eurozone were revised down 0.2 point to 2.0 percent in 2018.

Growth in the 19-nation zone is forecast to slow further to 1.9 percent in 2019, unchanged from the July estimate.

“Healthy consumer spending and job creation amid supportive monetary policy are expected to continue to provide strong aggregate demand, though at a moderating pace,” according to the report.