Global Economic Growth; I.M.F. Raises 2017 Outlook

April 23, 2017

The International Monetary Fund has raised its global economic growth outlook, pointing to a post-election rise in confidence in the U.S., a surge in global trade and improved prospects in upcoming markets.

The glowing prediction is something of an about turn for the fund, which has been quite uninspiring in the recent past about the global economy’s ability to manage any sustained development.

While delivering the spring edition of I.M.F’s World Economic Outlook, a comprehensive report on the global economy that is revised many times annually, the fund’s economists grabbed the Tuesday opportunity to raise alarm against protectionist trends adopted by developed economies. The fund predicted a growth rate of 3.5% in 2017 Vis a Vis that of 3.1% in 2016.

As the fiercest advocate of customary free-trade policies, the I.M.F. has, a good part of the last one year, been arguing that trade, devoid of any protective barriers such as duties and tariffs is critical to a robust world economy.

Last week the I.M.F. managing director, Christine Lagarde, warned in her speech of a “Sword of protectionism” that threatens to hamper the expansion ability of the global economy.

The fund’s head avoided making any mention of president trump as well as his pledge to put the interests of America first regarding any signing of trade deals with business partners such as Mexico and China.

However, through the press, speeches, as well as confidentially voiced concerns; the fund has hardly disguised its apprehensions that any anti-trade talk could hinder the international economic recovery.

The I.M.F’s chief economist, Maurice Obstfeld – at a news conference on Tuesday – said that, “One salient threat is trade protectionism, leading to trade warfare.”

According to I.M.F, after a growth of 2.2 percent last year, the international trade volume is projected to expand by 3.8 percent this year and rise to 3.9 in 2018.

The U.S. economy’s growth rate was predicted to rise by to 2.3% in 2017 and 2.5% next year. This is up from 1.6% in 2016.

Developing countries were projected to grow at 4.5% in 2017 and 4.8% in 2018, a remarkable progress from the 4.1% in 2016.

According to Mr. Obstfeld, “There has been a stream of continuing positive data that we have seen since the middle of 2016,” he added that the pickup in industrial production, manufacturing and trade is what is fueling their confidence that this year, as well as next year, will be considerably better than 2016.

In its analysis, the I.M.F. pointed out a pickup n commodity prices as well as indications of improved investment spending as the main reasons that have led to the better outlook in the developing world.

A big fraction of this demand has been brought about by China, which reported 6.9% first quarter economic growth, on Monday. This happens to be its highest quarterly growth tally in the last two years.

According to economists, the increase in public and private investment is the key thrust behind this surge in activity. Recent data shows a 20% increase in Chinese import hence the boom. In the report, the fund projects that the growth of the Chinese economy will slow down a bit to about 6.6% in 2017 Vis avis  that of 6.7% in 2016.

In spite of the recent surge, a number of economists believe that any pace close to 7” is unsustainable. The recent indications of a slowdown in credit are enough proof that the Chinese economy might run out of steam in the future quarters.

The fund has also taken note of the attendant risks that China faces by relying too much on credit especially shadow financing – which is hard to pin down, to spur growth.

The fund’s chief economist, mr. Obstfeld, also said that growth has mainly remained dependent on domestic credit growth, which is so rapid to an extent that it may bring about financial stability issues in future . He also warned that these problems are likely to spill to other countries in future.

But all in all, the general verdict of the I.M.F is that, the global economy is leaded in the right direction. In spite of the existing concerns of protectionism, several indicators show a positive expansion of the global economy.