28 Sept 2016
IMF urges action on trade slowdown, low inflation
The International Monetary Fund has urged global action to reverse a slowdown in trade and economic growth.
In a chapter from the half-yearly World Economic Outlook study released ahead of its annual meeting next week, the IMF said the weakness of the global economy, rather than a wave of protectionism, had been largely responsible for the sharp slowdown in trade growth over the past four years. the Guardian newspaper reports.
But it said a rise in protectionist measures since the financial crisis has “not been innocuous”, adding that anti-trade sentiment could harden.
The IMF’s warning came as the World Trade Organization cut its forecast for global trade growth this year by more than a third, reflecting a slowdown in China and falling levels of imports into the United States, Reuters said.
The new figure of 1.7 percent, down from the WTO’s previous estimate of 2.8 percent in April, marked the first time in 15 years that international commerce was expected to lag the growth of the world economy, the trade body said.
Global GDP is expected to grow 2.2 percent this year, it said.
The figures should be a wake-up call for governments, WTO director-general Roberto Azevedo said in the agency’s trade outlook report.
“We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system,” Azevedo said.
The IMF, meanwhile, called for a “comprehensive and coordinated plan” to boost the recovery with structural and fiscal policies, the Telegraph said.
It warned that faith in central banks’ ability to fight low inflation was “diminishing” in economies where interest rates were already close to zero.
The Fund attributed the current environment of low inflation largely to falling commodity prices and subdued prices of tradeable goods.
However, it said more “aggressive” action could be needed in economies where low inflation expectations risked becoming entrenched, including a “credible and transparent commitment” by central bankers to deliberately overshoot targets in order to raise inflation more quickly, according to the Telegraph.
“Persistent disinflation can lead to costly deflationary cycles – as we have seen in Japan – where weak demand and deflation reinforce each other, and end up increasing debt burdens and hindering economic activity and job creation,” it said.
Full content of EJ Insight is available at www.ejinsight.com. Copyright Hong Kong Economic Journal Ltd. Republishing and editing are forbidden without authorization from Hong Kong Economic Journal. If there are any questions, please contact Chris Yeung (firstname.lastname@example.org) for editorial matters and Margaret Lor (email@example.com) for sales and marketing matters.