IMF: Global governments must safeguard against a downturn

18 Apr 18

The International Monetary Fund has warned governments around the world to take advantage of favourable economic conditions to build policies to protect economies against a downturn.

It said in its World Economic Outlook report, released yesterday, that the upswing in global investment and trade continued in the second half of 2017 and the 3.8% global growth rate was the fastest since 2011 - and was forecast to increase to 3.9% in both 2018 and 2019.

Advanced economies would grow fast. Euro area economies were set to narrow excess capacity with support from monetary policy, while expansionary fiscal policy would drive the US economy above full employment.

Aggregate growth in emerging market and developing economies was projected to firm up further, the IMF said, with continued strong growth in emerging Asia and a modest upswing in commodity exporters after three years of weak performance.

But the IMF warned that global growth was expected to soften beyond 2019 with output gaps closing in most advanced economies, which would see them return to growth rates well below pre-crisis averages.

They would be held back by “ageing populations and lacklustre productivity”, the report said.

The IMF said upside and downside risks to the short-term outlook were broadly balanced, but beyond that  they “clearly lean to the downside”.

Concerns included a possibly sharp tightening of financial conditions, waning popular support for global economic integration, growing trade tensions, risks of a shift toward protectionist policies and geopolitical strains.

It said the current conditions offered “a window of opportunity to advance policies and reforms that secure the current upswing and raise medium-term growth to the benefit of all”.

Such policies should focus on strengthening the potential for higher and more inclusive growth, building buffers to deal more effectively with the next downturn, improving financial resilience to contain market risks and stability concerns and fostering international cooperation.

Addressing a press conference to launch the survey, Maurice Obstfeld, IMF economic counsellor, said the IMF had raised its growth projections for the euro area, Japan, China and the United States for the near-term, “but beyond this, longer-term prospects are more sobering”.

“Advanced economies facing ageing populations, falling rates of labour force participation, and low productivity growth will likely not regain soon the per capita growth rates they enjoyed before the global financial crisis.”

He warned: “The present good times will not last for long, but sound policies can extend the current upswing while reducing the risks of a disruptive unwinding.

“Countries need to rebuild fiscal buffers to enact structural reforms and steer monetary policy cautiously in an environment that is already complex and challenging.”

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