IMF sees weaker global economy but upgrades U.S. forecast; Canada unchanged

International Monetary Fund (IMF) Managing Director Christine Lagarde gestures while speaking during a news conference, at IMF headquarters in Washington, Monday, June 16, 2014. (AP / Pablo Martinez Monsivais)

WASHINGTON -- The International Monetary Fund is downgrading its outlook for the world economy because of simmering international trade tensions.

But at the same time, the fund is boosting its forecast for U.S. economy this year, citing expectations that the Federal Reserve will cut interest rates.

The IMF said Tuesday that it expects the global economy to expand by a "sluggish" 3.2% in 2019, down from 3.6% in 2018 and from the 3.3% growth it forecast for this year back in April. The 189-country lending organization blamed the lacklustre growth on heightened trade tensions and specifically a tariff war between the world's two biggest economies, the United States and China.

The fund said it expects the U.S. economy to grow 2.6% in 2019, down from 2.9% last year but up from the 2.3% it forecast in April.

The Fed improved prospects for U.S. growth by abandoning plans to keep raising interest rates. It is easing its policies partly to offset the economic fallout from President Donald Trump's trade wars. The Fed is widely expected to cut rates at its meeting next week.

The IMF expects the 19-country eurozone to record modest 1.3% growth this year. It forecasts 6.2% growth for the Chinese economy, slowest since 1990 when China faced sanctions following the brutal crackdown on pro-democracy demonstrations in Beijing's Tiananmen Square. And the lender predicts that the Japanese economy will eke out a 0.9% gain.

U.S.-China trade friction and the prospect of Britain's messy divorce from the European Union are disrupting global trade. The IMF expects trade to expand 2.5% this year, slowest pace since 2016 and a sharp downgrade from the 3.4% growth it forecast in April.