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International Trade war clouds world economic prospects

Featured International Trade war clouds world economic prospects
WASHINGTON DC, July 16, 2018 - The International Monetary Fund says the risk that current trade tensions escalate will further —with adverse effects on confidence, asset prices, and investment—is the greatest near-term threat to global growth.

In an update on the world economic outlook today, the IMF said Global current account imbalances are set to widen, owing to the United States’ relatively high demand growth, possibly exacerbating frictions.

The world economic body says "the United States has initiated trade actions affecting a broad group of countries, and faces retaliation or retaliatory threats from China, the European Union, its NAFTA partners, and Japan, among others. Our modeling suggests that if current trade policy threats are realized and business confidence falls as a result, global output could be about 0.5 percent below current projections by 2020.

"Amid rising tensions over international trade," the IMF says  "the broad global expansion that began roughly two years ago has plateaued and become less balanced. We continue to project global growth rates of just about 3.9 percent for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term."

The IMF pointed out that  "Growth remains generally strong in advanced economies, but it has slowed in many of them, including countries in the euro area, Japan, and the United Kingdom. In contrast, GDP continues to grow faster than potential and job creation is still robust in the United States, driven in large part by recent tax cuts and increased government spending."

"Even U.S. growth is projected to decelerate over the next few years, however,as the long cyclical recovery runs its course and the effects of temporary fiscal stimulus wane. For the advanced economies,we project 2018 growth of 2.4 percent, down 0.1 percentage point from our April World Economic Outlook projection. We maintain an unchanged forecast of 2.2 percent growth in those economies for 2019," the IMF said.

"For emerging market and developing economies as a group, we still project growth rates of 4.9 percent for 2018 and 5.1 percent for 2019. These aggregate numbers, however, conceal diverse changes in individual country assessments.

"China continues to grow in line with our earlier projections. In some large economies in Latin America, emerging Europe,and Asia,we now projectgrowth rates below our April forecasts.

"Supply disruptions and geopolitical tensions have helped raise oil prices, benefiting emerging oil exporters (for example, Russia and Middle Eastern suppliers) but harming importers (for example, India). For the aggregate of emerging market economies, the upward and downward revisions largely offset each other.

"Overall growth in sub-Saharan Africa will exceed that of population over the next couple of years, allowing per capita incomes to rise in many countries; but despite some recovery in commodity prices, growth will still fall short of the levels seen during the commodity boom of the 2000s. Adverse developments in Africa—civil strife or weather-related shocks, for example—could intensify outward migration pressures, especially toward Europe.

As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.

Other risks have become more prominent since our April assessment. Political uncertainty has risen in Europe, where the European Union faces fundamental political challenges regarding migration policy,fiscal governance, norms concerning the rule of law, and the euro area institutional architecture.

The terms of Brexit remain unsettled despite months of negotiation. Prospective political transitions in Latin America over coming months add to the uncertainty.Finally, although some geopolitical dangers may appear to be in remission, their underlying drivers in many cases are still at work.

Financial markets seem broadly complacent in the face of these contingencies, with elevated valuations and compressed spreads in many countries. At the same time, however, high levels of public and private debt create widespread vulnerability. Asset prices are no doubt buoyed, not only by easy financial conditions, but by the generally still satisfactory global growth picture.

They therefore are susceptible to sudden re-pricing if growth and expected corporate profits stall. Supporting growth into the medium term—where trend growth rates are forecast to be lower for advanced economies and many commodity exporters—requires that policymakers act now to raise growth potential and re silience through reforms, while re-building fiscal buffers and guiding monetary policy carefully to keep inflation expectations well anchored on targets.

 

Last modified onMonday, 16 July 2018 16:54
  • Countries: United_States

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