Trade war to keep hitting China's economy, IMF says

China’s slowing economy is going to get even weaker in the year ahead.

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Economic growth in China will slow to 5.8 percent in 2020 – from 6.1 percent in 2019 – as the U.S.-China trade war and growing debt levels weigh, the International Monetary Fund said in its October 2019 World Economic Outlook. China’s economy grew at a 6.6 percent rate in 2018.

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“In China, the growth downgrade reflects not only escalating tariffs but also slowing domestic demand following needed measures to rein in debt,” the IMF said.

Beijing said on Friday that China’s economy grew at a 6 percent rate in the third quarter, down from 6.2 percent in the April to June period. The growth was the slowest since quarterly record-keeping began in 1993.

A slowdown in the Chinese economy has been exacerbated by U.S. tariffs imposed on about $350 billion of Chinese goods as Trump worked to curb the country's intellectual property theft and gain greater access to its markets. Duties on another $150 billion in merchandise are slated for December.

The trade war isn’t the only burden weighing on the Chinese economy – domestic demand is slowing. Retail sales grew at a 7.8 year-over-year rate in September. Growth was 9.8 percent year over year in June.

In August, China’s cabinet announced a list of 20 measures to boost domestic consumption, including improving commercial pedestrian streets to encouraging night markets.

The People’s Bank of China (PBOC) has also take some action.

The central bank cut its reserve requirement ratio three times this year in an effort to combat the slowdown of the Chinese economy, and will continue to “pursue a prudent monetary policy,” according to PBOC Governor Yi Gang.

Beijing will also continue to make reforms and open up the Chinese economy in order to support growth.

“Going forward, China will remain firmly committed to all-round opening up,” Yi said.

“We will further open up the manufacturing sector, the financial sector and other modern service sectors, take forward the reform of the exchange rate mechanism and the convertibility of the RMB under the capital account in a steady manner, lower overall tariffs voluntarily, further improve relevant laws and regulations, and strengthen intellectual property right protection.”

A continued slowdown in China’s economy will come at a time when growth picks up around the rest of the world, according to the IMF.

Global growth will expand at a 3.4 percent rate in 2020 after slowing to 3 percent in 2019, the IMF said. The global economy grew 3.6 percent in 2018.

“It is important to keep in mind that the subdued world growth of 3 percent is occurring at a time when monetary policy has significantly eased almost simultaneously across advanced emerging markets,” the IMF said.

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“In our assessment, in the absence of such monetary stimulus, global growth would be lower by 0.5 percentage points in both 2019 and 2020.”