IMF warns against pro­tec­tion­ist poli­cies

> World econ­omy mov­ing side­ways and strong, sus­tain­able growth still elu­sive, says chief econ­o­mist

The Sun (Malaysia) - - SUNBIZ -

WASH­ING­TON: The In­ter­na­tional Mon­e­tary Fund (IMF) warned on Tues­day against the pop­ulist, in­ward­look­ing poli­cies now tempt­ing vot­ers in many of the world’s ad­vanced economies.

The global econ­omy is show­ing some sta­bil­ity but is fail­ing to break out of the low growth that has been per­sis­tent since the 2008 fi­nan­cial cri­sis. This fail­ure has fu­elled po­lit­i­cal move­ments against trade, mi­gra­tion and glob­al­i­sa­tion that could ac­tu­ally im­pair fu­ture pros­per­ity, the Wash­ing­ton-based cri­sis lender said.

The IMF left its global eco­nomic fore­casts Tues­day at 3.1% growth this year and 3.4% in 2017, both un­changed from the pre­vi­ous up­date in July.

“Strong, sus­tain­able, bal­anced and in­clu­sive growth .... still eludes us,” chief econ­o­mist Mau­rice Ob­st­feld said Tues­day af­ter the re­lease of the IMF’s World Eco­nomic Out­look re­port. “Global growth re­mains weak, even though it shows no no­tice­able de­cel­er­a­tion over the last quar­ter.”

The IMF fore­cast GDP growth in ad­vanced economies of about 1.7% in 2016-17, while emerg­ing mar­kets and de­vel­op­ing economies are around 4.4% as a group.

“Taken as a whole, the world econ­omy is mov­ing side­ways,” Ob­st­feld said. “With­out de­ter­mined pol­icy ac­tion to sup­port eco­nomic ac­tiv­ity over the short and longer terms, sub­par growth at re­cent lev­els risks feed­ing on it­self through the neg­a­tive eco­nomic and po­lit­i­cal forces it is un­leash­ing.”

Al­ready, risk­ing po­lit­i­cal un­cer­tainty is hin­der­ing busi­ness in­vest­ment and neart­erm eco­nomic ac­tiv­ity, the re­port found.

“The Brexit vote and the on­go­ing US pres­i­den­tial elec­tion cam­paign have high­lighted a fray­ing con­sen­sus about the ben­e­fits of cross-bor­der eco­nomic in­te­gra­tion,” the IMF said. “Con­cerns about the im­pact of for­eign com­pe­ti­tion on jobs and wages in a con­text of weak growth have en­hanced the ap­peal of pro­tec­tion­ist pol­icy ap­proaches, with po­ten­tial ram­i­fi­ca­tions for global trade flows and in­te­gra­tion more broadly.”

Bri­tish Prime Min­is­ter Theresa May said on Sun­day that her govern­ment would be­gin ne­go­ti­a­tions in March 2017 to quit the Euro­pean Union, af­ter the June Brexit ref­er­en­dum.

In the United States, both ma­jor­party pres­i­den­tial can­di­dates op­pose the Trans-Pa­cific Part­ner­ship (TPP), a trade deal to be con­sid­ered late this year in Congress, and have called for the 22year-old North Amer­i­can Free Trade Agree­ment with Canada and Mex­ico to be scrapped or rene­go­ti­ated.

Mean­while, prospects for the Transat­lantic Trade and In­vest­ment Part­ner­ship, still in ne­go­ti­a­tion be­tween the US and the Euro­pean Union, ap­pear dim in the face of op­po­si­tion from politi­cians in Europe.

The big­gest change in the World Eco­nomic Out­look was for the United States, where the IMF slashed its 2016 growth fore­cast by 0.6 per­cent­age points to 1.6%, af­ter a dis­ap­point­ing first half blamed partly on weak busi­ness in­vest­ment. The IMF pre­dicted eu­ro­zone growth to re­main around 1.6% for 2016-17; the fore­cast for Germany has strength­ened since July while ex­pec­ta­tions were cut for France and Italy.

The short-term pro­jec­tion for Ja­pan was raised in light of fis­cal and mon­e­tary stim­u­lus, while China’s grad­ual slow­down is slated to con­tinue. The IMF slightly raised its fore­cast for In­dia – now the world’s fastest-grow­ing ma­jor econ­omy – to 7.6% for 2016-17.

Par­tic­u­larly in rich coun­tries, per­sis­tently slow growth has be­come the norm since the 2008 global fi­nan­cial cri­sis, amid sig­nif­i­cant govern­ment stim­u­lus mea­sures and ac­com­moda­tive mon­e­tary pol­icy at or near record lev­els.

“Tepid growth risks be­com­ing self­per­pet­u­at­ing as in­vest­ment falls, pro­duc­tiv­ity growth de­clines, labour mar­kets be­come less dy­namic and hu­man cap­i­tal erodes,” Ob­st­feld wrote in a fore­word to the IMF re­port. The re­port en­cour­aged fis­cal stim­u­lus where govern­ment bud­gets al­low, along with long-needed struc­tural re­forms.

“It is vi­tally im­por­tant to de­fend the prospects for in­creas­ing trade in­te­gra­tion,” Ob­st­feld wrote. – dpa

AFPPIX

This file photo taken on Sept 29 shows Air Ber­lin jets parked on the tar­mac at Tegel air­port in Ber­lin.

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