Global Growth Has Plateaued At 3.7%;Clouds On The Horizon: IMF

WASHINGTON — Global growth has plateaued at 3.7 per cent, the International Monetary Fund (IMF) said Tuesday, with its chief economist warning the world that there are clouds on the hori­zon and growth has proven to be less balanced than hoped.

“Last April, the world econo­my’s broad-based momentum led us to project a 3.9 per cent growth rate for both this year and next. Considering develop­ments since then, however, that number appears over-optimistic: rather than rising, growth has plateaued at 3.7 per cent,” IMF Chief Economist Maurice Obst­feld said as the world body re­leased the World Economic Out­look, its annual flagship report.

Released during the annual IMF and World Bank meeting in Bali, Indonesia, the World Eco­nomic Outlook projects that global growth will remain steady over 2018—19 at last year’s rate of 3.7 per cent. This growth exceeds that achieved in any of the years between 2012 and 2016, he said.

“It occurs as many economies have reached or are nearing full employment and as earlier defla­tionary fears have dissipated. Thus, policymakers still have an excel­lent opportunity to build resilience and implement growth-enhancing reforms,” Mr. Obstfeld said.

But “there are clouds on the horizon,” he said. “Growth has proven to be less balanced than hoped. Not only have some downside risks that the last WEO identified been realised, the like­lihood of further negative shocks to our growth forecast has risen. In several key economies, more­over, growth is being supported by policies that seem unsustain­able over the long term. These concerns raise the urgency for policymakers to act,” the top IMF official said.Noting that growth in the United States, buoyed by a procyclical fiscal package, con­tinues at a robust pace and is driving US interest rates higher, Mr. Obstfeld said U.S. growth will decline once parts of its fiscal stimulus go into reverse.

“Notwithstanding the present demand momentum, we have downgraded our 2019 US growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China’s retaliation,” he said, adding that China’s expected 2019 growth is also marked down.

Domestic Chinese policies are likely to prevent an even larger growth decline than the one IMF projected, but at the cost of pro­longing internal financial imbal­ances, he said.

“Overall, compared with six months ago, projected 2018—19 growth in advanced economies is 0.1 percentage point lower, in­cluding downgrades for the euro area, the United Kingdom, and Korea. The negative revisions for emerging market and develop­ing economies are more severe, at -0.2 and -0.4 percentage point, respectively, for this year and next year,” Mr. Obstfeld said.

With their core inflation rates largely quiescent, advanced economies continue to enjoy easy financial conditions. “This is not true in emerging and de­veloping economies, where fi­nancial conditions have tight­ened markedly over the past six months,” he said.

For emerging market and de­veloping economies, gradually tightening US monetary policy, coupled with trade uncertain­ties and — for countries such as Argentina, Brazil, South Africa, and Turkey — distinctive factors, have discouraged capital inflows, weakened currencies, depressed equity markets, and pressured in­terest rates and spreads, he said.

Many emerging economies, he noted, are managing rela­tively well — given the common tightening they face — using es­tablished monetary frameworks based on exchange rate flexibility.

“But there is no denying that the susceptibility to large global shocks has risen. Any sharp re­versal for emerging markets would pose a significant threat to advanced economies, as emerg­ing market and developing econ­omies make up about 40 per cent of world GDP at market exchange rates,” the IMF chief economist warned. Mr. Obstfeld said the im­pacts of trade policy and uncer­tainty are becoming evident at the macroeconomic level, while anecdotal evidence accumulates on the resulting harm to compa­nies. “Trade policy reflects poli­tics, and politics remain unset­tled in several countries, posing further risks,” he added.

He urged all countries to pre­pare their workforces for the ways that new technologies will change the nature of work.

“Ensuring that growth is in­clusive is more important than ever. Unless growth can be made more inclusive than it has been, centrist and multilateral ap­proaches to politics and policy will become increasingly vulner­able — to the detriment


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