IMF warns rising trade tensions threaten to derail global growth
Emerging Asia seen as top global growth engine
WASHINGTON, April 17, (Agencies): The International Monetary Fund warned on Tuesday that rising US-China trade restrictions threaten to damage a steady global growth picture, but there was still time for the world’s two largest economies to step back from the brink.
The IMF, in its latest World Economic Outlook, kept its global growth forecasts for both 2018 and 2019 unchanged at 3.9 percent after upgrades in January that were partly based on expectations of stronger US spending spurred by tax cuts.
But IMF chief economist Maurice Obstfeld said those effects will fade quickly, causing growth to slow in subsequent years.
“The prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail growth prematurely,” Obstfeld told a news conference ahead of the IMF and World Bank spring meetings this week, where trade is expected to dominate discussions.
Plans
Asked if a trade war was under way, Obstfeld said the United States and China had fired “some warning shots” on tariff plans but had not activated them.
“There’s still room for countries, I think, to engage in a more multilateral set of discussions to take advantage of the set of dispute resolution mechanisms in place to avoid any intensification,” he said.
Obstfeld added that the Trump administration trade initiatives would do little to reduce the overall US trade and current account deficits, as these have more to do with US spending exceeding income.
The IMF raised its US growth projections by 0.2 percentage point from its January forecasts for both years, to 2.9 percent for 2018 and 2.7 percent for 2019.
“Global growth is projected to soften beyond the next couple of years,” the IMF said in the report, adding that advanced economies would be “held back by aging populations and lackluster productivity.”
The Trump administration has maintained that Republican tax cuts passed last year would allow the United States to maintain sustained gross domestic product growth above 3 percent for years and defy forecasts that US budget deficits will balloon over the coming decade.
For now, the IMF said increased export demand was contributing to slight growth forecast upgrades for the euro area and Britain for 2018, while the IMF 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 lowincome developing countries.
The IMF said prospects for developing economies to grow per-capita incomes face difficulties over the next five years, especially in commodityexporting countries in the Middle East, sub-Saharan 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 tensions, such as the United States and China’s recent dueling tariff announcements, could take a direct toll on trade and economic activity and also cause financial market turmoil that would tighten financial conditions and hurt confidence.
Research from 2016, the IMF said, showed that tariffs or other barriers that led to a 10 percent increase in import prices in all countries would lower global output and consumption by about 1.75 percent after five years and close to 2 percent in the long term. Global trade would fall 15 percent after five years and 16 percent in the long run under such a scenario, it said.
The IMF said Tuesday it remains upbeat about the economic prospects of emerging Asia, labelling the region “the most important engine of global growth” despite concerns over trade disputes and mounting debt.
The International Monetary Fund’s latest quarterly World Economic Outlook forecasts global growth of 3.9 percent this year as the world economy hums along and nations retain supportive fiscal policies.
The fastest-paced expansion will remain concentrated in Asia, it predicts, where the buoyant economies of China, India and a host of Southeast Asian nations will perform well above the global average.
The IMF left unchanged from January its growth estimate for China of 6.6 percent for 2018 and 6.4 percent in 2019. The country’s own 2018 target is around 6.5 percent.
China reported Tuesday that its economy had grown 6.8 percent in the first quarter, maintaining the same pace as the fourth quarter.
India is widely expected to be the next global growth juggernaut.
The IMF foresees the nation’s economy surging by 7.4 percent this year and 7.8 percent in 2019, also unchanged from its previous outlook in January.
The two Asian giants have seen their economic prospects brighten amid strong global demand for their exports and as their massive populations start spending, the IMF said.
Southeast Asia’s booming economies of Indonesia, Malaysia, the Philippines, Thailand and Vietnam will collectively maintain growth above five percent this year and next, the fund said.
“Emerging Asia, which is forecast to continue growing at about 6.5 percent during 2018-19, remains the most important engine of global growth,” the fund wrote.
Global trade jumped 4.9 percent last year, the fund estimated, with China’s exporters being among the largest beneficiaries.
Their prospects are less certain amid US President Donald Trump’s threats to impose tariffs on up to $150 billion worth of Chinese goods as part of his “America First” agenda.
“Growing trade tensions and risks of a shift toward protectionist policies, and geopolitical strains” are among the greatest concerns, the fund said.
“An increase in tariffs and non-tariff trade barriers could harm market sentiment, disrupt global supply chains, and slow the spread of new technologies, reducing global productivity and investment,” the fund said.