IMF downgrades 2019 economic growth forecast on U.S.-China concerns

Jan. 22 (UPI) -- The U.S.-China trade conflict and Britain's exit from the European Union pose considerable risk to global economic growth, the International Monetary Fund said Tuesday as it scaled back its forecast for 2019.

The fiscal body cut its economic growth forecast from 3.7 to 3.5 percent, saying tariffs and economic uncertainties have changed world markets dramatically in since its initial projection in October. The forecast for 2020 also fell 0.1 percent to 3.6.

"Six months ago these were threats, but they were not at the level of magnitude we have now," IMF Managing Director Christine Lagarde told CNBC. "There is a compounding effect to all this."

The IMF cites a slowdown in the German auto industry and financial risks in Italy as factors pulling Europe down. The deadline for Britain to exit the European Union is March 29 but Prime Minister Theresa May has struggled to get her deal through British Parliament. One sticking point is how Britain will handle trade post Brexit.

"In Europe, the Brexit cliffhanger continues, and the costly spillovers between sovereign and financial risk in Italy remain a threat," the IMF said.

For the United States, the IMF said core inflation is close to the target and growth exceeds projections. But the Trump administration's escalating trade war with China raises serious concerns for some sectors of the economy.

"An escalation of trade tensions and a worsening of financial conditions are key sources of risk to the outlook," the IMF said in its updated outlook. "Higher trade uncertainty will further dampen investment and disrupt global supply chains. A more serious tightening of financial conditions is particularly costly given the high levels of private and public sector debt in countries."

The longest government shutdown in U.S. history also poses risks to the global economy.

Largarde cited new trade deals like the U.S.-Mexico-Canada agreement and a new Pacific trade agreement as positive signs.

"But you still have the big elephant in the room: The U.S. and China that have to resolve trade disputes over issues of intellectual property, state-owned entities, subsidies and the balance of trade," she said.

Both the United States and China have imposed billions of dollars in tariffs on imported goods from both countries.