International Monetary Fund lowers SA's economic growth forecasts

Concerns over macroeconomic situation of the country keep investors jittery

Concerns over macroeconomic situation of the country keep investors jittery

The size of Pakistan's debts to China has prompted concern from US Secretary of State Mike Pompeo, who told CNBC that he would be watching to see whether Khan's government used IMF funds to pay off Chinese loans.

After consulting with "leading economists", Pakistan will formally approach the International Monetary Fund for support and Finance Minister Asad Umar will hold talks with officials during the lender's annual meetings in Bali this week, the Finance Ministry said in a statement late Monday.

After a visit last week, the IMF issued a report saying Pakistan is facing significant economic challenges, with declining growth, high fiscal and current account deficits, and low levels of worldwide reserves.

With US GDP growth expected to drop from 2.9 per cent this year to 1.8 per cent by 2020, the International Monetary Fund also warned about the potential risk of an "inflation surprise", fuelled by the same tax cuts and rising spending used to cushion the impact from the trade war.

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

The outlook for world trade overall also darkened: The fund expects global trade to grow 4.2 percent this year, down from 5.2 percent in 2017 and from the 4.8 percent it expected in July. The IMF report said Pakistan's government has already begun moving in the right direction but had not gone far enough.

"But there is no denying that the susceptibility to large global shocks has risen", Obstfeld said. "Any sharp reversal for emerging markets would pose a significant threat to advanced economies", he added.

China's rate of growth could decline by as much as a full percentage point or more by 2019 if a "worst-case" scenario materialises, involving further tariffs, a commensurate Chinese counter-response and a collapse in confidence by businesses and markets.

Some energy-rich emerging market countries have fared better due to higher oil prices, with Saudi Arabia and Russian Federation receiving upgrades to growth forecasts. But it predicts that US growth will slow to 2.5 per cent next year as the effect of recent tax cuts wears off and as US President Donald Trump's trade war with China takes a toll.

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".

Most of the "meager gains" from growth have gone to the well off, fueling support for protectionism and anti-establishment leaders, said Mr Obstfeld. On Monday, the currency was trading at 128 per US dollar on the open market and 124.20 in the official interbank rate.

The repercussions for the United States and China would be particularly severe, with 2019 GDP losses of more than 0.9 percent in the United States and 1.6 percent in China in 2019. It also assumes that Trump imposes a 25 percent tariff on imported cars and auto parts.

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