IMF warns of protectionist threat WASHINGTON: The IMF on Tuesday left its global economic forecasts unchanged into 2017 but called on governments to take action against the threats of low growth and protectionism.
With Britain voting to secede from the European Union and US presidential candidates disfavouring open borders, the International Monetary Fund said populist politics imperilled free trade and economic growth.
Global output is expected to grow this year by 3.1 per cent before rising to 3.4pc next year, estimates that are unchanged from July, according to the IMF’s new World Economic Outlook report.
But the Fund downgraded forecasts both for growth in global trade volume and for advanced economies’ output, saying that prospects for richer countries had darkened this year.
The IMF notably cut its outlook for the United States, the world’s largest economy, but upgraded those for Japan and the eurozone.
It also called Chinese businesses’ dependence on high levels of credit to bolster growth “dangerous” and unsustainable, creating risks to China’s economic stability in the medium-term.
The focus of worries, however, was the sharp rise of talk against free trade pacts and for raising barriers to foreign competition in leading economic powers, including the United States and some European countries. “It is vitally important to defend the prospects for increasing trade integration,” said IMF chief economist Maurice Obstfeld “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”
The IMF downgraded its outlook for advanced economies this year by 0.2 percentage points to 1.6pc, but raised it slightly for emerging and developing economies to 4.2pc. Next year’s forecasts were unchanged.
The world trade outlook also soured, with growth now pegged at a very low 2.3pc this year, before rising to 3.8pc in 2017.
The IMF said global growth still faces notable uncertainties, such as further economic shocks in China, a continued fall in commodity prices and the sudden imposition of new trade barriers.
Following a lackluster second quarter, the United States suffered the report’s sharpest downward revision of 0.6 percentage points, with growth now foreseen at 1.6pc this year and 1.8pc in 2017.
Japan was a surprise bright spot, however, with forecasts revised upward. The Japanese economy is now due to grow by 0.5 and 0.6pc this year and next.
Likewise, the eurozone got a slight boost, with output expected to increase by 1.7pc this year — stronger than the United States — and 1.5pc in 2017.
But Obstfeld warned of the “gathering political fallout” of a low-growth era in wealthy countries where income distribution has skewed “sharply towards the highest earners.”