EU and US risk 'negative shocks' to economy, IMF warns

French growth would shrink by a similar degree, it said, while the US itself would suffer a 0.4 point drop.

Meanwhile, the British economy would grow by 1.1 percent this year, not 1.3 percent, as the IMF had previously forecast, due to uncertainty on Brexit.

The international lender seldom takes political sides.

But it singled out US president Donald Trump for blame after he imposed tariffs on EU steel and aluminium and on hundreds of billions of dollars of Chinese trade.

"Protectionist rhetoric has increasingly turned into action, with the United States imposing tariffs on a variety of imports," the IMF said.

"Intensification of trade tensions, and the associated rise in policy uncertainty, could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade," it said.

"Unsustainable" borrowing by some wealthy states, which put sovereign solvency at risk, made the outlook even more worrisome, Maurice Obstfeld, the IMF's chief economist, added.

"The likelihood of further negative shocks to our growth forecast has risen," he said.

Wide-open

The survey comes amid US and EU talks on a free-trade deal.

The new accord could be in place by the end of 2019, Gordon D. Sondland, the US ambassador to the EU, told press in Brussels last week.

When Trump met European Commission president Jean-Claude Juncker in Washington in July, the US president also offered him a "wide-open" trade accord with no tariffs, barriers, or subsidies of any kind, but Europe was not ready for that, Sondland said.

"I was there [at the Trump-Juncker] talks. I heard the discussion," he said.

"I don't think the political will is there yet on the side of the EU to do a deal like that, because there are too many industries [in Europe] that have fences built around them," Sondland said.

He described the value of an EU-US trade bloc in adversarial terms, despite the IMF's warning on "rhetoric" and "tensions".

A Western trade bloc would help US strategy to curb Chinese growth and expansionism, Sondland said.

"The sooner we conclude our business [EU-US trade talks] ... the sooner we can seize the opportunity to make China act like a good global citizen," he said.

The IMF warning on sovereign borrowing also comes amid Italy's plan to overspend on EU fiscal limits, putting its future solvency in doubt.

Italy and Greece

Markets have punished Italian bonds and bank shares, as well as Greek bank shares in a knock-on effect of the dispute, which has descended into name-calling.

"The enemies of Europe are those sealed in the bunker of Brussels," Italy's populist interior minister and deputy prime minister, Matteo Salvini, said on Monday.

"I would not wish that, after having really been able to cope with the Greek crisis, we'll end up in the same crisis in Italy," Juncker said one week ago.

"One such crisis has been enough," he said.

His comparison of a potential Italian crisis to the Greek one failed to note the difference in scale.

The Greek bailouts gobbled up €300bn, but Italy's economy and banking sector are vastly larger than those of Greece, making it too expensive to save.

Good times

Monday's IMF survey came on the heels of another warning, last week, that the world economy was also at risk of another 2008-type financial meltdown due to reckless behaviour by private banks.

It said global debt levels were higher than in 2008, meaning that if one big bank were to fail, the way Lehman Brothers did 10 years ago, the ensuing market panic could be more severe than before.

"Risks tend to rise during good times," the IMF said.