IMF warns of protectionist threat to global growth

Wednesday, Oct 5, 2016,13:03 IST By Metrovaartha A A A

Washington | The International Monetary Fund today 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 disfavoring open borders, the International Monetary Fund said populist politics imperiled free trade and economic growth.

Global output is expected to grow this year by 3.1 per cent before rising to 3.4 per cent 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.” “Taken as a whole, the world economy has moved sideways,” Obstfeld said in remarks accompanying the new forecast.

He said that “sub-par growth” was stirring negative economic and political forces around the world.

The IMF downgraded its outlook for advanced economies this year by 0.2 percentage points to 1.6 per cent but raised it slightly for emerging and developing economies to 4.2 per cent. Next year’s forecasts were unchanged.

The world trade outlook also soured, with growth now pegged at a very low 2.3 per cent this year, before rising to 3.8 per cent in 2017.

“Over the medium term, while we expect that advanced economies will continue along a disappointingly low growth path, emerging market and developing economies should accelerate,” said Obstfeld.

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.