IMF: Reverse global trade slowdown
dubai — The International Monetary Fund (IMF) on Tuesday called for immediate action to reverse a slowdown in trade and stop low inflation from triggering a downward spiral of weak growth amid job cuts and higher debt as the World Trade Organisation (WTO) sounded the alarm over falling volumes of trade around the world.
The IMF, which released a chapter from its World Economic Outlook, said the remarkable slowdown in trade growth was largely a consequence of falling economic growth.
The Washington-based Fund pointed out that normally trade growth tended to increase far quicker than world gross domestic product (GDP), but that for the past few years, it had been considerably slower.
The WTO said that 2016 would see the weakest trade growth since the financial crisis. It said trade will grow by 1.7 per cent in 2016, compared with its estimate of 2.8 per cent from earlier this year and the weakest number since 2009. The WTO described the dismal figures as a “wake-up call” for policymakers.
According to the analysis by the Fund, a further move away from trade liberalisation was likely to hold back international trade in goods, harm economic development and prolong the global slowdown.
The IMF also called for a comprehensive plan to boost global economic recovery with structural and fiscal policies as it warned that faith in central banks’ ability to fight low inflation was diminishing in economies where interest rates were already close to zero.
“The current environment of low inflation has been largely a product of falling commodity prices and subdued tradeable goods prices, with inflation expectations not much affected yet,” the IMF said.
According to the Fund, more aggressive action was needed in economies where low inflation expectations risked becoming entrenched, including a credible and transparent commitment by central bankers to deliberately overshoot targets in order to raise inflation more quickly.
“An environment of subdued but positive inflation could carry significant economic costs even if a deflation trap is avoided,” the IMF said.
It warned that “eventually, persistent disinflation can lead to costly deflationary cycles where weak demand and deflation reinforce each other, and end up increasing debt burdens and hindering economic activity and job creation.”
The IMF’s analysis showed threequarters of the slowdown in trade was due to weaker global activity, but warned that trade barriers such as anti-dumping duties had increased since 2008 and urged countries to “resist protectionism”.
The global lender said China needs to revamp its financial regime to reduce possible “spillovers” onto the rest of the world.
The IMF said a more free-floating exchange rate, a transparent mechanism for signalling policy changes and a system to counter vulnerability are all desirable for China in a reminder of Beijing’s past policy missteps — from last summer’s stock market rout to opaque yuan exchange-rate tweaks that had roiled global markets.
The IMF pointed out that an enhanced status for the yuan means more global responsibility for Beijing, and warned that spillovers from the yuan’s exchange rate would have a large impact on commodity and equity prices and on other emerging markets’ currencies.
— issacjohn@khaleejtimes.com
geneva — The World Trade Organization on Tuesday downshifted its global trade forecast, warning that anti-globalisation rhetoric and Brexit were pushing trade growth to its slowest pace since the financial crisis.
The warning comes as talks on a landmark free trade deal between the European Union and United States battle stiff opposition and as Britain’s EU exit causes jitters.
The WTO said that global trade was now estimated to expand by just 1.7 per cent this year, compared to its April projection of 2.8 per cent.
The new figure is also a far cry from a projection a year ago that trade would swell by 3.9 per cent this year.
Describing it as “wake-up call”, the Geneva-based global trade body said growth had fallen to its slowest pace in around seven years when the global financial crisis hit.
“With expected global GDP (gross domestic product) growth of 2.2 per cent in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009,” the trade body said in a statement.
Looking ahead, the WTO said several issues, including Brexit’s possible impact, had now cast a shadow and it had revised down its 2017 forecast.
Trade is now expected to grow between 1.8-3.1 per cent, down from the previously anticipated 3.6 per cent, said the WTO, which sets the rules of global commerce.
Also clouding the outlook, the WTO said, is “the possibility that growing anti-trade rhetoric will increasingly be reflected in trade policy” as well as financial volatility due to monetary policy changes in developed countries.
“The recent run of weak trade and economic, growth suggests the
the recent run of weak trade and economic, growth suggests the need for a better understanding of changing global economic relationships
WTO statement
need for a better understanding of changing global economic relationships,” it said.
It warned that “creeping protectionism”, coupled with lacking trade liberalisation and perhaps the growing role of the digital economy and e-commerce might help explain the recent declining ratio of trade growth to GDP growth.
Last week, the Paris-based Organisation for Economic Cooperation and Development said Britain — the world’s fifth-biggest economy — was poised to take a major hit next year from its decision to leave the EU.
The WTO said that the main impact of the shock vote in June had been on the value of the pound and noted that it had not sparked an immediate economic downturn.
But, it added: “Effects over the longer term remain to be seen. Economic forecasts for the UK in 2017 range from fairly optimistic to quite pessimistic.”
The WTO said the downgrade followed a sharper-than-expected decline in merchandise trade volumes in the first quarter, and a smaller-than-expected rebound in the second quarter.
The contraction, it said, was driven especially by slowing economic and trade growth in developing economies like China and Brazil.
China’s banking sector debt came into the crosshairs earlier this month of the global central bank watchdog, the Bank for International Settlements, fuelling fresh fears about the world’s second biggest economy.
But, said the WTO, North America, which showed the strongest import growth of any region between 2014 and 2015, was also hit by deceleration. — AFP