News Regional18 Jul 2018

Global:IMF warns of less even economic growth and rising trade tensions

| 18 Jul 2018

Global growth is projected to reach 3.9% in 2018 and 2019, but the expansion is becoming less even, and risks to the outlook are mounting, says the IMF in its July 2018 World Economic Outlook Update.

Among advanced economies, growth divergences between the US on one side, and Europe and Japan on the other, are widening. Growth is also becoming more uneven among emerging market and developing economies, reflecting the combined influences of rising oil prices, higher yields in the US, sentiment shifts following escalating trade tensions, and domestic political and policy uncertainty

Advanced economy growth is expected to remain above trend at 2.4% in 2018—similar to 2017—before easing to 2.2% in 2019.

In the US, near-term momentum in the economy is expected to strengthen temporarily, with growth projected at 2.9% in 2018 and 2.7% in 2019. Substantial fiscal stimulus together with already-robust private final demand will lift output further above potential and lower the unemployment rate below levels last registered 50 years ago, creating additional inflationary pressures. Imports are set to pick up with stronger domestic demand, increasing the US current account deficit and widening excess global imbalances.

Growth in the euro area economy is projected to slow gradually from 2.4% in 2017 to 2.2% in 2018 and to 1.9% in 2019.

Asia

The growth forecast for Japan has been marked down to 1.0% for 2018 following a contraction in the first quarter, owing to weak private consumption and investment. The economy is expected to strengthen over the remainder of the year and into 2019, aided by stronger private consumption, external demand, and investment.

Emerging and Developing Asia is expected to maintain its robust performance, growing at 6.5% in 2018–19.

Growth in China is projected to moderate from 6.9% in 2017 to 6.6% in 2018 and 6.4% in 2019, as regulatory tightening of the financial sector takes hold and external demand softens.

India’s growth rate is expected to rise from 6.7% percent in 2017 to 7.3% in 2018 and 7.5% in 2019, as drags from the currency exchange initiative and the introduction of the goods and services tax fade.

Growth in the ASEAN-5 group of economies (that is, Indonesia, Malaysia, Philippines, Thailand, and Vietnam) is expected to stabilise at around 5.3% as domestic demand remains healthy and exports continue to recover.

Trade tensions

The report points out that the balance of risks has shifted further to the downside, including in the short term. The recently announced and anticipated tariff increases by the US and retaliatory measures by trading partners have increased the likelihood of escalating and sustained trade actions. These could derail the recovery and depress medium-term growth prospects, both through their direct impact on resource allocation and productivity and by raising uncertainty and taking a toll on investment.

Policy priorities

Avoiding protectionist measures and finding a cooperative solution that promotes continued growth in goods and services trade remain essential to preserve the global expansion, says the Update. Policies and reforms should aim at sustaining activity, raising medium-term growth, and enhancing its inclusiveness. But with reduced slack and downside risks mounting, many countries need to rebuild fiscal buffers to create policy space for the next downturn and strengthen financial resilience to an environment of possibly higher market volatility.


 


 

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