IMF predicts global economy accelerating despite risks | Business| Economy and finance news from a German perspective | DW | 18.04.2017
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IMF predicts global economy accelerating despite risks

A resilient China, rising commodity prices and sturdy financial markets are offering a brighter outlook for the global economy, says the International Monetary Fund, but warns of a rise in protectionist policies.

In its World Economic Outlook report released on Tuesday, the International Monetary Fund (IMF) hiked its global growth prediction for 2017 by one-tenth of a percentage point - compared with its January outlook - to 3.5 percent.

It was the crisis lender's first upward revision in two years, seeing the global expansion for 2018 at a pace of 3.6 percent - also slightly more than in January.

This year, the global recovery is being driven mainly by the US and Chinese economies, which are set to grow 2.3 percent and 6.6 percent respectively. Moreover, the 19-country eurozone is predicted to expand 1.7 percent - the same as last year, while Japan's GDP is forecast to grow 1.2 percent, up from one percent in 2016.

"The global economy seems to be gaining momentum - we could be at a turning point. But even as things look up, the post-World War II system of international economic relations is under severe strain," IMF chief economist Maurice Obstfeld said in a statement.

Protectionist clouds

The IMF's semi-annual report warned of "significant downside risks" to the outlook, which had worsened since January. Obstfeld specifically mentioned "the turn towards protectionism, leading to trade warfare."

Many of the IMF concerns, including rolling back financial regulation, pulling away from the multilateral trading system and restricting immigration, are centerpieces of US President Donald Trump's "America first" policies. But the IMF also sees them in the French election campaign, as well as in Britain's planned exit from the European Union.

IMF chief economist Obstfeld noted that "capitulating to those pressures would result in a self-inflicted wound," that would harm countries by pushing prices higher and eroding household income, prompt retaliation, and worsen the global economy. 

Addressing the social gap 

In its report, the Washington-based fund said hundreds of millions of people had been lifted out of poverty through economic integration and technological progress, "helping to reduce global income inequality."

But the benefits of growth and the burden of economic adjustments had been unequally shared, making it necessary for governments to "address these disparities head-on to ensure the stability of an open, collaborative trading system that benefits all."

The IMF recommends "well-targeted initiatives" to help workers adversely affected by free trade and other economic changes to "find jobs in expanding sectors" as well as "social safety nets to smooth the loss of income," and improved education and training in the longer term.

"Similarly, curbing immigration flows would hinder opportunities for skill specialization in advanced economies, limiting a positive force for productivity and income growth over the long term," the report said. 

China issues

The IMF report stressed that risks to the outlook "remain tilted to the downside," meaning that while growth could turn out to be faster than expected particularly if there is a large US government spending program there are more negative scenarios on the horizon.

China's "dangerous dependence on rapidly expanding credit" was one area of concern, as was weak demand in Europe, and a series of noneconomic factors, including geopolitical risks and corruption, the IMF found.

Nevertheless, the fund increased China's growth outlook by 0.1 percent to 6.6 percent this year, and by two tenths of a percentage point to 6.2 percent in 2018.

"Global economic activity is picking up speed, but the potential for disappointments remains high, and momentum is unlikely to be sustained in the absence of efforts by policymakers to implement the right set of policies and avoid missteps," the IMF concluded.

Watch video 00:44

China cuts economic growth target

uhe/kd (AFP, AP, Reuters, dpa)


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