While the IMF's outlook for the Chinese economy stayed at 6.6% this year, its forecast for next year of 6.2% represents the slowest growth rate the Asian country has seen since 1990.
The Pakistani government has made a decision to approach the International Monetary Fund (IMF) for a bailout to address the mounting balance of payments crisis faced by the South Asian country, Finance Minister Asad Umar announced on Monday. Output could fall by more than 1.6 per cent in China and over 0.9 per cent in the US next year, according to the IMF's models.
But the United States tax cuts and rising spending that have boosted growth, helping compensate for the impact of the growing trade conflict, could spark a sudden "inflation surprise", and in turn lead to faster-than-expected rise in U.S. interest rates, according to the fund.
"Owing to these changes, our global growth projections for both this year and next are downgraded to 3.7 per cent, 0.2 percentage point below our last assessments and the same rate achieved in 2017", the report said. It now expects the global economy to only expand by 3.7% in 2018 and 2019, down from 3.9% before.
The IMF's projection is close to the World Bank's forecast of 7 percent for fiscal 2018-19, released on Oct 2.
Russian Federation was among the few energy-rich emerging market countries whose growth forecasts were bumped up.
Breaking the negative trend of six consecutive sessions, bulls made a strong comeback as it was reported that Pakistan would officially approach International Monetary Fund for a bailout.
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Trade tensions are expected to continue although Fund officials view US-Mexico-Canada trade agreement as a positive sign.
"Where we are now is we've gotten some bad news".
"Trade policy reflects politics and politics remains unsettled in several countries, posing further risks", Obstfeld said.
The IMF concluded a consultative visit last week with a warning that Pakistan needed to quickly secure "significant external financing" to stave off a crisis, though it did not suggest who could supply the money.
The model also includes the effects of a reduction in business confidence that reduces investment and leads to a tightening of financial conditions.
In the October edition of the report, International Monetary Fund cut the growth projections for 2018 to 1.9 percent.
President Donald Trump has slapped tariffs on US$250 billion in Chinese goods this year, and Beijing has retaliated with levies US$110 billion of American products.
Adjustments would occur as domestic production displaces higher-priced imports, the model shows, but in the long run, the US GDP would still be 1% below a baseline without these tariffs, while China's GDP output would be 0.5% below the baseline.