Friday 19 January 2018

IMF warns of backlash as growth is 'too low for too long'

Maurice Obstfeld, chief economist at the International Monetary Fund, warns over stagnation
Maurice Obstfeld, chief economist at the International Monetary Fund, warns over stagnation
Colm Kelpie

Colm Kelpie

International growth has been too low for too long, sparking political repercussions that could depress growth even further, the IMF has warned.

The Washington-based fund raised the possibility that persistent stagnation, particularly in advanced economies, could further fuel populist calls for restrictions on trade and immigration.

That will have a negative effect on the world economy, the organisation said, as it fractionally downgraded global growth for this year.

The warning comes just days after the World Trade Organisation warned of a serious slowdown in global trade, stressing it should serve as a wake-up call.

Global growth will remain subdued this year following a slowdown in the United States and the Brexit vote in the UK, the Fund said, as it said GDP would be 0.1 percentage points slower than it had predicted in April.

Global growth is projected to slow to 3.1pc this year, before recovering to 3.4pc in 2017. "Taken as a whole, the world economy has moved sideways," said IMF chief economist and economic counsellor Maurice Obstfeld.

Mr Obstfeld warned of the political fallout from persistently low growth and said the slow and incomplete recovery from the crisis has been "especially damaging in those countries where the distribution of income has continued to skew sharply toward the highest earners, leaving little room for those with lower incomes to advance.

"The result in some richer countries has been a political movement that blames globalisation for all woes and seeks somehow to wall off the economy from global trends rather than engage co-operatively with foreign nations. "Brexit is only one example of this tendency.

"In short, growth has been too low for too long, and in many countries its benefits have reached too few - with political repercussions that are likely to depress global growth further."

In its latest update of its World Economic Outlook, the IMF said that a drop in US growth for this year due to a weak first-half performance would be offset by strengthening in Japan, Germany, Russia, India and some other emerging markets.

The IMF said advanced economies as a whole will see a weakening of growth in 2016, down 0.2 percentage points from July to 1.6pc, while emerging market and developing economies will see a 0.1 percentage point gain in growth to 4.2pc.

The United States accounts for much of the decline in advanced economies, with a reduction to 1.6pc growth from 2.2pc forecast in July, due to a disappointing first-half performance caused by weak business investment and a draw-down of goods inventories.

In emerging market and developing economies, growth will accelerate for the first time in six years.

Irish Independent

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