The IMF on Tuesday said protectionist political trends risked “turning back the clock” on free trade, warning of a low-growth future for the global economy.
In its World Economic Outlook report, the global crisis lender also sounded an alarm over what it called a “dangerous” credit binge in China.
With Britain voting this year to secede from the EU and US presidential candidates disfavoring open borders, the IMF said populist politics imperiled trade liberalization and economic growth.
“It is vitally important to defend the prospects for increasing trade integration,” IMF lead economist Maurice Obstfeld said. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”
Global GDP is expected to grow this year by 3.1 percent before rising to 3.4 percent next year, estimates that are unchanged from July.
“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 percent, but raised it slightly for emerging and developing economies to 4.2 percent. Next year’s forecasts were unchanged.
“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,” Obstfeld said.
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.
“Geopolitical tensions could flare up, adding to the humanitarian crises already afoot in the Middle East and Africa,” the report said.
Following a lackluster second quarter, the US suffered the report’s sharpest downward revision of 0.6 percentage points, with growth now foreseen at 1.6 percent this year — slower than the eurozone — and 1.8 percent next year.
Japan was a surprise bright spot, with forecasts revised upward. The Japanese economy is now due to grow by 0.5 percent this year and 0.6 percent next year.
Likewise, the eurozone got a slight boost, with output expected to increase by 1.7 percent this year and 1.5 percent next year.
The IMF adjusted downward its economic growth forecast for Taiwan for this year and next year by 0.5 percent, to 1 percent and 1.7 percent, respectively.
The IMF’s forecasts for South Korea this year and next were 2.7 percent and 3 percent, 1.4 percent and 1.9 percent for Hong Kong, and 1.7 percent and 2.2 percent for Singapore, while the Philippines is tipped to outshine its ASEAN partners by achieving growth of 6.4 percent and 6.7 percent this year and next, the report said.
In his remarks, Obstfeld said the “gathering political fallout” of a low-growth era in wealthy countries where income distribution has skewed “sharply towards the highest earners.”
“The result in some richer countries has been a political movement that blames globalization for all woes and seeks somehow to wall off the economy from global trends rather than engage cooperatively with foreign nations,” he said.
Contractions in Russia and Brazil are also due to end, while prospects for China were unchanged, with the world’s second-largest economy expected to grow a robust 6.6 percent this year and 6.2 percent next year.
The IMF report cited an alarming growth in private-sector credit in China, propping up state enterprises to postpone the recording of losses — risking an “eventual disruptive adjustment.”
Obstfeld pushed back against assertions that the IMF had been excessively alarmist in warning of the fallout of Britain’s vote to leave the EU.
The IMF said earlier this year that the Brexit vote could cause a recession in the UK.
Tuesday’s forecasts instead revised British growth upward by 0.1 percentage points for this year, to 1.8 percent, while it further downgraded next year’s outlook to 1.1 percent.
Obstfeld said British markets had reacted more favorably than anticipated, but that current circumstances were within the range of possibilities the IMF had initially published.
“We did focus on possible risks and those possible risks were there,” he said.
Additional reporting by CNA
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