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IMF cuts China's 2019, 2020 growth forecasts amid trade tensions

The International Monetary Fund cut its economic growth forecast for China for this year and next, citing uncertainty regarding ongoing trade tensions.

The IMF trimmed its 2019 growth forecast for the Chinese economy to 6.2% from the 6.3% estimated in April and its 2020 forecast to 6.0% from 6.1% previously, noting that policy stimulus measures planned by the government would offset the negative impact from recently imposed higher tariffs on about $200 billion of Chinese exports.

"No additional policy easing is needed, provided there are no further increases in tariffs or a significant slowdown in growth," said David Lipton, IMF's first deputy managing director. Some additional policy easing "would be warranted" if trade tensions with the U.S. escalate further and puts China's economic and financial stability at risk, he added.

Lipton suggested that China should cooperate with its trading partners to "address shortcomings" in global trade and that the country should further open up its services sector to promote growth.

The U.S.-China trade war weighed on the global and the Chinese economy in 2018. While the country's growth beat expectations in early 2019, uncertainty lingers as tensions between the world's two largest economies continue to escalate and a trade agreement between the two remains out of reach.

The IMF expects Chinese economic growth to gradually slow to 5.5% by 2024.

US-China tariffs to reduce global GDP by $455 billion

In April, the IMF lowered its global growth forecast for 2019 to 3.3% from a previous estimate of 3.5%. Global expansion was projected to pick up to 3.6% in 2020.

IMF Managing Director Christine Lagarde warned that trade tensions are "self-inflicted wounds" and "stumbling blocks" to a rebound in economic growth.

"The risk is that the most recent U.S.-China tariffs could further reduce investment, productivity, and growth," Lagarde said in a June 5 blog post. "The just proposed U.S. tariffs on Mexico are also of concern."

Lagarde said the recently announced tit-for-tat tariffs between the U.S. and China could reduce global economic output in 2020 by 0.3%. Combined those with the tariffs implemented in 2018, the total impact could be a 0.5% reduction in global GDP next year, or about $455 billion, bigger than South Africa's economy.

Lagarde said the immediate priority for G-20 nations is to resolve current trade tensions, while stepping up the modernization of the international trade system.

"The goal is to create a more open, more stable, and more transparent trade system," Lagarde said, noting that liberalizing trade in services could add about $350 billion to global GDP in the long run, based on IMF research.