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Earlier forecasts now seem "too optimistic", as the risks of "new disruptions in trade policy" have become more important, said Maurice Obstfeld, chief economist of the IMF, in a prepared speech.
"Two major regional trade agreements are changing – the NAFTA (where a new trilateral agreement is awaiting legislative approval) and the European Union (the latter negotiating the Brexit terms). Americans on China and more widely on automobiles and auto parts, can disrupt established supply chains, especially if retaliation has been exercised, "he said.
"The effects of trade policy and uncertainty are becoming evident at the macro level, as anecdotal evidence accumulates about the damage done to business." Trade policy reflects politics, and politics remains unstable in several countries, posing other risks, "he added.
The fund has also reduced its forecast of the volume of world trade: the total flow of goods and services is expected to increase by 4.2% this year and by 4% next year, by 0.6% and 0%, 5% respectively compared to previous estimates.
And the two economies at the center of the current tariff fight – the United States and China – are also expected to grow at a slower pace than initially expected. The IMF said the US and China would increase by 2.9% and 6.6%, respectively, this year, but said the two countries would slow down more than expected, returning to 2.5% and 6%, 2%, respectively, in 2019.
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