IMF: The current economic upswing will not last long

Despite the good short-term prospects, the world economy will experience a slowdown, which may be accompanied by trade wars – these conclusions from the World Economic Outlook report set the tone for the IMF and World Bank spring meetings.
IMF: The current economic upswing will not last long

(E. Strathmeyer, CC BY-NC-ND)

In the World Economic Outlook report (WEO), the International Monetary Fund (IMF) is forecasting that the global economy will grow by 3.9 per cent in 2018 and 2019 – this figure has not been changed from the general forecasts published in January 2018. Upward forecast revisions were made for the United States. The IMF indicated that the introduced tax cuts will add a total of 1.2 per cent to the country’s GDP by 2020 and that the American economy will grow 2.9 per cent in 2018 and 2.7 per cent in 2019.

Smaller upward revisions of forecasts were recorded in the case of most other advanced and emerging economies. The forecasts for China indicate growth of 6.6 per cent in 2018 and 6.4 per cent in 2019, while in the case of the Eurozone’s GDP will grow by 2.4 per cent and 2 per cent in the next two years. In turn, due to the consequences of Brexit, the United Kingdom will be one of the slowest growing countries among developed economies.

The IMF estimated that increased levels of productivity are responsible for 60 per cent of the upward revisions of forecasts for the next five years. The Fund’s analysts emphasize that next year developed economies will no longer be able to maintain high GDP growth rates without an increase in inflation. After 2018, the growth rate in developed countries may fall below the levels recorded before the last crisis, which is mainly due to the aging of the populations in these countries and the lower expected levels of productivity.

Maurice Obstfeld, Chief Economist at the International Monetary Fund, said that global economic growth would slow down by 2020. The most important risk factors are the trade protectionism of the world’s largest economies and the growing trade tensions.

The recently initiated trade war could quickly escalated once the fiscal policy of the United States leads to a further increase in the American trade deficit, barring appropriate measures of European and Asian countries aimed at reducing their trade surpluses.

The IMF also emphasizes the issue of world debt, which has reached historically high levels. Although a minor decline in debt is expected in the medium term, it nonetheless remains a source of risk, especially for developing countries, as well as the low income countries. In this context, the commencement of a cycle of tightening of monetary conditions by the major central banks in the world means that some households, enterprises and countries (which mainly applies to the emerging economies) will have to deal with liabilities incurred during the last ten years in conditions of low interest rates.

Non-economic factors also pose a threat to global growth – they include, among others, geopolitical tensions, risks related to digital security and natural disasters.

The IMF points out that it is necessary to use the current favorable conditions in order to develop policies and to introduce reforms that will support the recovery and economic growth in the medium-term, when the conditions will become more difficult. These goals should be achieved through inclusive economic growth, the rebuilding of fiscal buffers, an improvement of financial resilience and the maintenance of a fair and open system of international trade.

(E. Strathmeyer, CC BY-NC-ND)

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