IMF warns on destructive trade war as start of Trump presidency looms

A "destructive" trade war could derail forecasts of global growth, the IMF has warned, as president-elect Donald Trump issues his latest threats aimed at protecting US industry.

The global economic body broadly expects world growth to accelerate after a sluggish 2016 with expansion in the US fuelled by more investment pledged by Mr Trump.

But chief economist Maurice Obstfeld said there was a risk that "trade disruptions" could throw forecasts off course - days ahead of Mr Trump's inauguration.

Trade wars can happen when countries try to protect their economies by putting heavy taxes on imported foreign goods, prompting rivals to retaliate with similar actions.

Mr Obstfeld said: "The possibility of trade disruptions is a downside risk to this forecast.

"It's an important downside risk.

"It is not in our baseline scenario, largely because we think that at the end of the day, countries will recognise that these actions are not in their own self interest, especially when there's the threat of retaliation by other countries.

"On the other hand, this could happen.

"It would derail our baseline forecast, possibly considerably, because the outbreak of a trade war could be quite destructive."

The IMF's latest forecast noted a risk from a "possible shift toward inward-looking policy platforms and protectionism".

The prospect of trade disputes has been raised by Donald Trump's hostile rhetoric on carmakers based in Mexico as well as previous remarks on China.

His latest broadside saw Mr Trump threaten to impose a 35% tax on Germany's BMW (EUREX: BMWE.EX - news) if its sets up plants in Mexico to export vehicles to the US.