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By Dai Qi

The economic growth of the United States is expected to soften to 2.5 percent in 2019 due to the recently introduced trade measures, said the International Monetary Fund (IMF) in its World Economic Outlook released on Tuesday.

The projection is a downward revision of 0.2 percentage point relative to IMF's forecast in April.

Trade tensions threats toward the global outlook

According to the report, escalating trade tensions and the potential shift away from a multilateral, rules-based trading system are key threats to the global economic growth outlook.

The report said a cooperative approach to reduce trade costs and resolve disagreements without raising tariffs and non-tariff barriers have so far proved elusive, with the United States imposing tariffs on a variety of imports and its trading partners undertaking retaliatory measures.

"An intensification of the trade tensions and the associated further rise in policy uncertainty could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade", said the report.

The IMF said in the report that an increase in trade barriers would disrupt the global supply chains, which have become an integral part of production processes in the past decades, and slow the spread of new technologies, ultimately lowering worldwide productivity and welfare.

"It would also make tradable consumer goods less affordable, harming low-income households disproportionately. "

In addition to their negative effects on domestic and global growth, protectionist policies would likely have very limited effect on external imbalances, according to the report.

"A combination of higher import tariffs by the United States and retaliatory measures by its trading partners could inflict significant costs on the global economy, especially through its impact on confidence and financial conditions," said the report.

The disruption caused by an escalation of trade restrictions could be particularly large in the United States and China, with GDP losses of more than 0.9 percent in the United States and over 1.6 percent in China in 2019, according to the report.

The IMF said in the report that trade tensions will also influence other countries.

"In the North American Free Trade Agreement (NAFTA) trading partners, where GDP is simulated to be more than 1.6 percent lower in 2020 than in the absence of tariff measures."

Recent trade measures to weigh on economic activities in 2019

In 2019, the recent trade measures are expected to weigh on economic activities, especially in the United States, where the 2019 growth forecast was revised downward by 0.2 percentage point, according to the report.

Growth in the United States is expected to peak at 2.9 percent in 2018, supported by the procyclical fiscal stimulus after eight consecutive years of expansion and still-loose financial conditions, said the report.

"However, the country's growth is expected to soften to 2.5 percent in 2019 and to drop to 1.8 percent in 2020 as the fiscal stimulus begins to unwind," said the report.

Global growth is projected at 3.7 percent in 2018 and 2019, 0.2 percentage point below that in the 2018 World Economic Outlook released in April.

"Global growth is expected to remain steady at 3.7 percent in 2020, as the decline in advanced economies' growth with the unwinding of the US fiscal stimulus and the fading of the favorable spillovers from US demand to trading partners is offset by a pickup in emerging markets and a developing economy growth", said IMF in the report.