Trade tensions have had a "significant" impact on China, says IMF

The intensification of trade tensions with the United States is beginning to weigh on Chinese growth.

The International Monetary Fund (IMF) lowered its growth forecast for 2019 from the world's second-largest economy to 6.3% Wednesday, from 6.3% to 6.2% after the conclusion of the IMF's visit. organization in China in the last two weeks or so.

"Trade tensions have had a significant impact, but in our opinion, limited so far," CNBC's Kenneth Kang, deputy director of the Asia-Pacific Department of the IMF and head of the team, told CNBC on Wednesday. of visitors.

"The resumption of trade tensions is a major source of uncertainty and a downside risk for our prospects … But I think we have to wait a few more months," he said.

The IMF expects China 's growth to slow to 6% next year and 5.5% by 2024.

Negotiations between Beijing and the government of President Donald Trump worsened in early May with rising tariffs on Chinese goods exported to the United States worth $ 200 billion and the effective ban on US companies doing business with Chinese telecommunications giant Huawei. Beijing responded by imposing US $ 60 billion worth of US goods, announcing the creation of a "list of unreliable entities" and tightening US demands more stringently .

US Treasury Secretary Steven Mnuchin and the governor of the People's Bank of China Yi Gang are expected to meet this weekend, but there is no indication whether Trump and Chinese President Xi Jinping will hold talks during the meeting. G20 meeting in Japan at the end of the month. months to seal even a temporary agreement.

US trade pressure comes as China is already facing a slowdown in growth. In the past year, the authorities announced a series of measures to improve the financing of private enterprises – which represent the majority of jobs and economic growth – as well as tax cuts to boost consumption. .

Until now, these efforts have borne fruit.

Kang noted that "employment has resisted" despite increased trade tensions. "We encourage the authorities to rely more on market forces than on administrative objectives to improve efficiency and make this credit sustainable," he said.

Data from a private poll released this week indicate that the Chinese economy is staying just above the level of 50 which indicates expansion. The index of Caixin / Markit's factory purchase managers for May was 50.2, unchanged from April. However, the services index dropped to 52.7 in May, the lowest since February, according to Reuters.

China's official gross domestic product (although frequently implicated) rose 6.4 percent in the first quarter, unchanged from the previous quarter, but down from 6.8 percent a year earlier.

"The stimulus measures announced up to now are sufficient to stabilize growth in 2019/20 despite the recent rise in the US tariff," said David Lipton, the IMF's first deputy chief executive, in a statement released on Wednesday.

"No new easing policy is needed, provided there are no further rate increases or a significant slowdown in growth," he said. -he declares. But he noted that additional measures would be needed if trade tensions increased.

In a report on Tuesday, Morgan Stanley's economists also lowered their growth forecasts for China from 6.5% to 6.4% previously. Economists have also reduced their prospects for the United States and the world, citing the trade dispute.

"The resurgence of trade tensions put an end to the prospects of a resumption of global growth (second half of 2019)," the report said. While trade tensions persist in an escalation cycle, the risks for the global outlook remain sharply downward. "

"If the gravity of trade tensions increases or the duration of the measures persists," economists said, "a deceleration of global growth or a global recession appears inevitable."

-Reuters contributed to this report.