The Daily Update - IMF World Economic Outlook - Grow Now, Fray Later

Yesterday the IMF issued its latest semi-annual World Economic Outlook, in which it kept global growth forecasts unchanged at 3.9% for 2018/19. The report issued upward revisions of 0.2% for the US in 2018/19 (due to fiscal expansion) and Europe in 2018. Looking at the largest global economies, this year the IMF expects China to grow by 6.6% (6.4% ’19), the US by 2.9% (2.7% ’19), the Euro region by 2.4% (2% ’19) and Japan by 1.2% (0.9% ’19). The UK is predicted to grow by 1.6% in 2018, down 0.2% from earlier estimates, and just 1.5% next year.

However, the report did come with a caveat, with the article warning that ‘Global growth is projected to soften beyond the next couple of years. Once their output gaps close, most advanced economies are poised to return to potential growth rates well below pre-crisis averages – held back by aging populations and lacklustre productivity’.

As the Economic Counsellor and Director of Research at the IMF, Maurice Obstfeld explained 'Despite the good near-term news, longer-term prospects are more sobering, advanced economies – facing aging populations, falling rates of labour force participation, and low productivity growth – will likely not regain the per capita growth rates they enjoyed before the global financial crisis’. Whilst Obstfeld believes sound economic policies would help reduce the risk of any disruptive unwinding, at the same time extending the upswing, he believed this is easier said than done. ‘Countries need to rebuild fiscal buffers, enact structural reforms and steer monetary policy cautiously in an environment that is already complex and challenging’ he warns.

The report goes on to warn that the current rhetoric surrounding trade wars, tariffs and protectionism could distract from the decisions that need to be made to improve and sustain growth. As the report states, ‘While upside and downside risks to the short-term outlook are broadly balanced, risks beyond the next several quarters clearly lean to the downside. Downside concerns include a possibly sharp tightening of financial conditions, waning popular support for global economic integration, growing trade tensions and risks of a shift toward protectionist policies, and geopolitical strains’.  As Obstfeld puts it ‘Governments need to rise to the challenges of strengthening growth, spreading its benefits more widely, broadening economic opportunity through investments in people that could radically transform the nature of work’ warning that ‘fights over trade distract from this vital agenda, rather than advancing it. Global interdependence will only continue to grow and unless countries face it in a spirit of collaboration, not conflict, the world economy cannot prosper’.

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