Posted January 22, 2019 00:03:12

Photo: If US-China trade tensions continue, there could be abrupt sell-offs in financial and commodity markets, IMF's chief economist said. (AP: Andrew Harnik)

Global economic growth is continuing to slow as trade tensions between the US and China continue to spook investors, consumers and central banks.

The International Monetary Fund (IMF) slightly lowered its growth forecasts from 3.7 per cent in 2018 to 3.5 per cent in 2019 after a noticeable weakening in financial market sentiment.

"Risks to global growth tilt to the downside. An escalation in trade tensions beyond those already incorporated into the forecast remains a key source of risk to the outlook," the IMF warned.

"A range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment with adverse growth implications."

Potential "triggers" to an economic shock include a "no-deal" exit of Britain from the European Union and a faster-than-expected slowdown in China.

Official data released yesterday show the Chinese GDP growth slowed to 6.4 per cent over the year to the end of December, down from 6.5 per cent in the year to September.

However, some economists believe the China slowdown is more serious than official information shows.

The IMF said the outlook was especially risky given high levels of public and private debt still held 10 years after the global financial crisis.

US-China trade tensions aside, the IMF's updated World Economic Outlook has nominated other key contributors to slowing growth, including the introduction of new automobile fuel emissions standards in Germany, concerns about a sovereign debt crisis in Italy and a deeper-than-expected economic contraction in Turkey.

The update also highlighted concerns about the US Government shutdown weighing on sentiment and a more cautious approach by central banks, notably the US Federal Reserve which has signalled a more gradual pace of interest rate increases over the next two years.

The slowdown in growth became noticeable in the second half of 2018 after disappointing results in some developed economies.

IMF chief economist Gita Gopinath warned that if US-China trade tensions continue, there could be abrupt sell-offs in financial and commodity markets.

"Given this backdrop, policy-makers need to act now to reverse headwinds to growth and prepare for the next downturn," Ms Gopinpath said.

While the US economic expansion continues fuelled by Donald Trump's tax cuts and infrastructure spending, the IMF is forecasting a deceleration as fiscal stimulus continues to unwind.

Follow Peter Ryan on Twitter @peter_f_ryan

Topics: business-economics-and-finance, united-states, china