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Maurice Obstfeld, Economic Counsellor and Director of the Research Department at the IMF.—AFP
Maurice Obstfeld, Economic Counsellor and Director of the Research Department at the IMF.—AFP

WASHINGTON: The Inter­national Monetary Fund warned on Monday that global economic expansion has plateaued, increasing the risk of worse outcomes, although it also projected that the world will maintain a 3.9 per cent growth rate in the next two years.

The IMF also emphasised the need for “a truly global effort … to curtail corruption,” because it “undermines faith in government in so many countries.”

In first of its twice-yearly economic forecasts, the IMF had warned in April that trade wars among nations will slow down the global growth by 2020, although it will continue to grow by 3.9pc in 2018 and 2019.

The international financial monitoring agency, however, issued a sterner warning in its latest World Economic Outlook report, released on Monday. “Amid rising tensions over international trade, the broad global expansion that began roughly two years ago has plateaued and become less balanced,” the IMF noted.

“We continue to project global growth rates of just about 3.9pc for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term,” it warned.

The IMF had pointed out in April that good times in the global economy will not last and that “jarring” contradictions between growth momentum and a conflict over trade” will ultimately slowdown the global economy.

In the July outlook, it noted that growth remained generally strong in advanced economies, but slowed in many of them, including countries in the euro area, Japan, and the United Kingdom.

In contrast, GDP continued to grow faster than potential and job creation was still robust in the United States, driven in large part by recent tax cuts and increased government spending.

The IMF, however, noted that even the US growth could decelerate over the next few years, as the long cyclical recovery ran its course and the effects of temporary fiscal stimulus waned.

“For the advanced economies, we project 2018 growth of 2.4pc, down 0.1 percentage point from our April World Economic Outlook projection. We maintain an unchanged forecast of 2.2pc growth in those economies for 2019,” the IMF said in its latest report.

“For emerging market and developing economies as a group, we still project growth rates of 4.9pc for 2018 and 5.1pc for 2019. These aggregate numbers, however, conceal diverse changes in individual country assessments.”

The IMF also noted that China continued to grow in line with its earlier projections. The Fund had noted in April that China’s steadily slowing growth improved to 6.9pc — the first such growth since 2011.

The IMF warned that some large economies in Latin America, emerging Europe, and Asia will growth at rates below its April forecasts.

It also noted that supply disruptions and geopolitical tensions between

April and June 2018 had helped raise oil prices, benefiting emerging oil exporters, such as Russia and the Middle East oil producers but harmed importers, particularly India. “For the aggregate of emerging market economies, the upward and downward revisions largely offset each other,” the report added.

The IMF noted that because of strong employment and firming inflation, the US Federal Reserve was on track to continue raising interest rates over the next two years, tightening its monetary policy compared with other advanced economies and strengthening the US dollar.

The dollar has already appreciated broadly since April, and financial conditions facing emerging and frontier economies had be­­come somewhat more restrictive.

The report noted that these financial conditions remained relatively benign but capital account pressures had been most intense for those with evident weaknesses — political uncertainty or macroeconomic imbalances. Both factors highlighted in the report apply to Pakistan.

The IMF, however, warned that if the US Federal Reserve tighten its monetary policy faster than expected, “a broader range of countries could feel more intense pressures.”

“The greatest near-term threat to global growth,” however, was the trade war among nations, which will have adverse effects on global confidence, asset prices, and investment, the report added.

Global current account imbalances would widen owing to a relatively high demand growth in the US, the report added.

The IMG noted that the United States had initiated trade actions affecting a broad group of countries, and faced retaliation or retaliatory threats from China, the European Union, its NAFTA partners, and Japan, among others.

“Our modeling suggests that if current trade policy threats are realised and business confidence falls as a result, global output could be about 0.5pc below current projections by 2020,” the report warned.

“As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.”

The report noted that political uncertainty had risen in Europe since April and the European Union faced fundamental political challenges regarding migration policy, fiscal governance, norms concerning the rule of law, and the euro area institutional architecture. The terms of Brexit remained unsettled despite months of negotiation.

The report noted that international migration pressures were “politically destabilising” and could not be dealt with without cooperative action to “improve international security, support the Sustainable Development Goals, and resist climate change and its effects.”

Published in Dawn, July 17th , 2018