IMF keeps global forecasts steady
• Growth fuelled by US stimulus is expected to run out of steam in 2020
Global growth will keep a steady pace in 2018 and 2019, buoyed by stronger trade and the US fiscal stimulus, which will fade by the early 2020s. Increased tariffs could damage market confidence and output, the IMF says.
In its latest World Economic Outlook, the fund kept its 2018 and 2019 global growth forecasts unchanged at 3.9% for both years after upgrades in January.
The projections were released as global finance officials are gathering in Washington for the IMF and World Bank meetings this week.
The IMF said it raised its US growth forecast 0.2 percentage point for both years, to 2.9% for 2018 and 2.7% for 2019. It said lower US corporate income tax rates and accelerated investment due to a temporary tax break would boost US growth until 2020, but these effects would then reverse quickly, causing a slowdown.
“Global growth is projected to soften beyond the next couple of years,” the IMF said. Advanced economies would be “held back by ageing populations and lacklustre productivity”. The Trump administration has maintained that tax cuts passed in 2017 would allow the US to maintain sustained GDP growth above 3% and defy forecasts that US budget deficits would balloon.
The IMF said increased export demand was contributing to slight growth forecast upgrades for the euro area and Britain for 2018, while it kept its forecasts unchanged for Japan, China, India, Russia and Mexico.
Forecasts were cut slightly for Canada, the Middle East and North African countries, as well as a number of low-income developing countries. Prospects for developing economies to grow per capita incomes faced difficulties over the next five years, especially in commodity exporting countries in the Middle East, Africa, Latin America and the Caribbean.
Risks to the global growth forecasts were broadly balanced for the next few quarters, with the potential for stronger business profits to increase hiring and investments that could boost productivity, the IMF said.
But trade tension, such as the tariff announcements by the US and China, could take a toll on trade and economic activity and cause financial market turmoil that would tighten financial conditions and hurt confidence. “An increase in tariffs and nontariff trade barriers could harm market sentiment, disrupt global supply chains and slow the spread of new technologies, reducing global productivity and investment,” the IMF said.
Greater protectionism would also lower consumer welfare by making tradable consumer goods more expensive.
Research from 2016, the IMF said, showed that tariffs or other barriers that led to a 10% increase in import prices in all countries would lower global output and consumption by about 1.75% after five years and close to 2% in the long term.
Global trade would fall 15% after five years and 16% in the long run under such a scenario, the Washington-based organisation said.