The International Monetary Fund is predicting that the global economy will enjoy its best level of growth since 2011 this year. The organisation has reported that global growth is expected to come in at 3.9% this year and hold steady at that level in 2019. However, all is not sweetness and light. The IMF is warning that the spectre of a trade war could mean that actual growth slows as the states involved erect barriers to trade which will effect the nations concerned but may also induce a knock-on effect.
The report raises the concern that there appears to be “waning support for global integration” and that financial markets, the global supply chain and the spread of new technology could all be hindered by the erection of barriers to trade, risking a reduction in global growth. It points out that (national) protectionist measures have the effect of pushing up prices to end users (consumers).
Maurice Obstfeld, the IMF’s chief economist is not convinced by the US president’s assertion that the US national deficit in trade can be assisted by generating barriers to trade with various US global trade partners. Mr Trump believes that it is due to poor trade agreements made by his predecessors in The White House which, in his view, take unfair advantage of the US. Obstfeld points out that the US deficit (generally) arises because the nation’s expenditure surpasses its income, a situation which recent tax cuts by the US administration will only exacerbate, at least in the near-term.
The IMF forecast is suggesting that global trade will be substantially stronger than it predicted at 3.9%, up from 3.7% (the global economy is worth something like $78.3 trillion, so a 0.2% increase equates to an additional $157 billion). The report suggests that growth in the USA, the Eurozone and Japan will all be 0.5% stronger than it predicted in 2017.
The report suggests that the Bank of England will need to increase interest rates to help reduce inflation which it feels could be pushed higher by increased wage settlements against a domestic backdrop of near full employment. The report adjusts UK growth for 2018 upwards to 1.6%, but expects it to slow back to 1.5% in 2019.