IMF sees solid global growth in near future

Trade row ‘threatens to derail momentum’

WASHINGTON: The global economy is expected to grow at a solid pace through next year, boosted by faster expansion in the United States and Europe, but after that risks will build, the International Monetary Fund said on Tuesday.

In the latest update to its World Economic Outlook, the IMF still predicts world growth of 3.9% in 2018 and 2019, unchanged from January despite raised estimates for US and EU growth. That is an improvement on the 3.8% global growth seen last year.

However, the fund cautions that the growth “momentum is not assured,” given trade tensions between the United States and China and the expected reversal of the positive effects from the US tax cuts.

IMF chief economist Maurice Obstfeld stressed that the trade conflict could damage the global economy if it broadens to affect other countries, and said even the prospect of a trade war could do harm.

“There’s not going to be any winners coming out of a trade war,” he told reporters, noting that the uncertainty alone could put a damper on investment.

The report notes that the sweeping US tax cuts approved in December will fuel higher growth only through next year, and after that will “subtract momentum.”

The IMF raised its US forecast by two tenths for both years, to 2.9% for 2018 and 2.7% for 2019, which follows big upward revisions in the October report, due to the tax impact.

However, Obstfeld warned the stimulus was “largely temporary.”

“And because the US boost accounts for most of the higher world expansion, beyond 2019 global growth is projected to gradually decline to 3.7% by the end of the forecast horizon,” the report said.

“The risks to the global economic outlook clearly lean to the downside beyond the next few quarters,’’ the IMF warned.

Like other advanced economies, the United States will max out growth and return to a more sluggish pace, “held back by aging populations and lacklustre productivity.”

And despite the fact increasing world trade helped boost growth in recent years, there has been a rise in public scepticism about the benefits, leading to a renegotiation of trade deals and increasing friction.

US President Donald Trump last month imposed steep tariffs on steel and aluminium imports and threatened to impose more on tens of billions of Chinese goods, prompting Beijing to slap duties on US goods like pork and sorghum and threaten even more sensitive US exports like soybean.

“That major economies are flirting with trade war at a time of widespread economic expansion may seem paradoxical — especially when the expansion is so reliant on investment and trade,” Obstfeld said.

“Our strong message at this meeting is there is a multilateral system. Let’s use it and proceed in a collaborative way rather than conflictive way.”

In other projections, the IMF upgraded the forecast for the euro zone to 2.4% for 2018, an upward revision of two tenths compared to the January estimate, as it raised its estimates for key members, especially Spain. But the forecast for 2019 was unchanged at 2.0%.

Japan’s growth is still seen at a sluggish 1.2% this year, after a rare and large upgrade of five tenths in January, slowing to 0.9% in 2019.

The forecasts for China and India, key drivers of global growth, were unchanged from January.

China is expected to expand 6.6% and 6.4% this year and next, while India should grow 7.4% and 7.8%.