The International Monetary Fund (IMF) has cut global growth forecasts for both 2018 and 2019, by 0.2% to 3.7%. The IMF stated that the trade tensions between the US and trading partners have started to hurt economic activity worldwide.
As well as the US trade tensions with China and the European Union (EU), there are two major regional trade arrangements that are in a state of flux. A new North American Free Trade Agreement (NAFTA) between the US, Canada and Mexico has been agreed but awaits legislative approval, whilst the EU is negotiating the terms of Brexit.
The new Italian government and their proposed budget, which plans to increase their budget deficit to 2.4%, sets up political tensions in the EU and may lead to further economic issues.
Although the IMF is concerned about trade within the developed economies, the downgrades for the emerging and developing economies are more severe than the developed economies, as there are signs of lower investment and manufacturing. Many emerging market currencies have weakened significantly, as their economies have experienced large capital outflows on the back of rising US interest rates.
Finally, since the 2008 financial crisis, global debt has risen 60% to $182 trillion; therefore, US interest rates will not have to rise much further to cause a debt meltdown. The age of austerity may not be over after all!