The report was released as thousands of finance professionals prepare to gather in Bali, Indonesia for the annual meeting of the IMF and the World Bank, its sister organization that primarily handles lending.
The IMF stated that they expect a 3.7 percent growth of the world economy by the end of this year, which is the same as last year. However, this is a 0.2 percent decrease from the forecast that they gave this past July.
Maurice Obstfeld, the current IMF Chief Economist, attributed this reduction to the trade tensions between the U.S. and its trade partners, which he believes are beginning to impact economic activity worldwide. (RELATED: Who is Gita Gopinath, The IMF’s First Female Chief Economist?)
“Two major regional trade arrangements are in flux — NAFTA (where a new trilateral agreement awaits legislative approval) and the European Union (with the latter negotiating the terms of Brexit). U.S. tariffs on China, and more broadly on auto and auto part imports, may disrupt established supply chains, especially if met by retaliation,” he told CNBC.
“The impacts of trade policy and uncertainty are becoming evident at the macroeconomic level, while anecdotal evidence accumulates on the resulting harm to companies,” he continued. “Trade policy reflects politics, and politics remain unsettled in several countries, posing further risks.”
Regarding the U.S. economy, the IMF is expecting a 2.9 percent growth this year, which is the fastest pace since 2005. However, they expect this growth to slow down by next year once the effects of recent tax cuts wear off and the Trump administration’s trade war with China begins to take a toll.
The outlook for global trade also got worse as the IMF expects the total goods and services flow to grow by 4.2 percent this year, which is a 0.6 percent decrease from earlier projections, and 4 percent next year, which is a 0.5 percent decrease from earlier projections.