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The International Monetary Fund (IMF) said on April 17, 2018 that, boosted by faster expansion in the United States (US) and European Union (EU), the global economy is expected to grow at a solid pace through next year 2019. But after that, risks will build up. The IMF in the latest update to its World Economic Outlook (WEO) still predicts world growth of 3.9 per cent in 2018 and 2019, unchanged from January 2018 despite raised estimates for the US and EU growth. That is an improvement on the 3.8 per cent global growth seen last year 2017. However, the Fund cautions that the growth "momentum is not assured," given trade tensions between the US and China and the expected reversal of the positive effect from the US tax cuts.
The IMF Chief Economist Maurice Obstfeld stressed that the trade conflict between the US and China could damage the global economy if it extends to affect other countries, and said even the prospect of a trade war could do harm. There is not going to be any winners coming out of a trade war. But the uncertainty alone could put a damper on investment. Obstfeld warned that "I suspect if you keep poking at economic expansion it could turn around and bite you", while it is difficult to predict how things will play out. The sweeping US tax cuts approved in December 2017 will fuel higher growth only through next year 2019, and after that will "subtract momentum".
The IMF raised its US forecast by two-tenths for both years, to 2.9 per cent for 2018 and 2.7 per cent for 2019, which follows big upward revisions in the October 2018 report, due to the tax impact. Obstfeld, however, warned that the stimulus was "largely temporary". And beyond 2019, "global growth is projected to gradually decline to 3.7 per cent by the end of the forecast horizon", because the US boost accounts for most of the higher world expansion. The IMF warns that the risks to the global economic outlook "clearly lean to the downside" beyond the next few quarters. The US will, like other advanced economies, max out growth and return to a more sluggish pace, "held back by aging populations and lacklustre productivity".
There has been a rise in public scepticism about the benefits, leading to a renegotiation of trade deals and increasing friction, despite the fact that increasing world trade helped boost growth in recent years. Last month, the US President Donald Trump imposed steep tariffs on steel and aluminium imports and threatened to impose more on tens of billions of Chinese goods. That prompted Beijing to slap duties on US goods like pork and sorghum and threaten even more sensitive US exports like soy. These two major economic powers are flirting with trade war at a time of widespread economic expansion may seem paradoxical; especially when the expansion is so reliant on investment and trade. Obstfeld said, "Our strong message at this meeting is there is a multilateral system. Let's use it and proceed in a collaborative way rather than conflictive way".
The IMF chief Christine Lagarde, while saying that the trade frictions hurt poor consumers the most as costs increase, warned governments to "steer clear of protectionism in all its forms". She also added that trade frictions also undermined a system that had broadened prosperity worldwide. Instead, the US and others should respond to anxiety about globalisation and technological advances by strengthening growth, spreading its benefits more widely and broadening economic opportunity through investments in people. According to the IMF, rather than lowering the trade deficit as Trump has called for, the US trade actions could expand it by another US $150 billion by 2019. And the IMF warned that a worsening of trade conflict could have broader implications for global growth as well as market confidence.
Amid the growing US-China trade dispute, the IMF cites the market turbulence in early February 2018 and into March 2018, when US stocks stumbled after surging to repeat records in the first weeks of 2018. By the end of March 2018, the Dow had lost almost 10 per cent of its value down from the record 26,616.71 reached on January 26, 2018. The rapid decline should "serve as a cautionary reminder that asset prices can correct rapidly and trigger potentially disruptive portfolio adjustments".
The IMF, in other projections, upgraded the forecast for the Euro area to 2.4 per cent for 2018, an upward revision of two-tenths compared to the January 2018 estimate, as it raised its estimates for key members, especially Spain. But the forecast for 2019 was unchanged at 2.0 per cent. Japan's growth is still seen at a sluggish 1.2 per cent in 2018, after a rare and large upgrade of five-tenths in January 2018, slowing to 0.9 per cent in 2019.
The forecasts for key drivers of global growth, China and India, were unchanged from January 2018. China is expected to expand 6.6 per cent and 6.4 per cent in 2018 and next 2019, while India should grow 7.4 per cent and 7.8 per cent in 2018 and 2019 respectively. It is wiser to share and enhance the economic prosperity of world countries by not putting barriers to trade between nations and shrinking the global economy by trade protectionism. Unhindered trade may also promote global peace.
Prof. Sarwar Md. Saifullah Khaled is a retired professor of Economics, BCS General Education Cadre.