World Growth on Firmer Footing
The International Monetary Fund raised its 2017 global growth forecast on Tuesday due to manufacturing and trade gains in Europe, Japan and China, but warned that protectionist policies threaten to choke a broad-based recovery.
The IMF, whose spring meetings with the World Bank get underway in Washington this week, forecast that the global economy would grow 3.5% in 2017, up from its previous forecast of 3.4% in January, Reuters reported.
In its latest World Economic Outlook, the fund said that chronically weak advanced economies are expected to benefit from a cyclical recovery in global manufacturing and trade that started to gain momentum last summer.
"The economic upswing that we have expected for some time seems to be materializing," IMF chief economist Maurice Obstfeld wrote in the report.
The IMF lifted Japan's 2017 growth projection by 0.4 percentage point from January, to 1.2%, while the eurozone and China both saw a 0.1 percentage point growth forecast increase to 1.7% and 6.6%, respectively.
Meanwhile, the IMF held its 2017 US growth forecast steady at 2.3%, which still represents a substantial jump from 1.6% growth in 2016, partly due to expectations that President Donald Trump will cut taxes and increase government spending.
The IMF also revised Britain's growth forecast to 2% for 2017, up a half percentage point from January.
Obstfeld said an anticipated pullback in consumer spending after last year's UK vote to leave the European Union had so far failed to materialize. He added that uncertainty over Britain's snap elections announced on Tuesday would not necessarily change the outlook, but a clear mandate from the British people could help Brexit negotiations.
Turn Towards Protectionism
Although growth looks to be strengthening broadly among advanced and emerging market economies as well, oil and commodity exporters that are starting to benefit from a commodity price recovery, including Russia and Brazil, the IMF said the recovery remains fragile.
The outlook faces headwinds from chronically weak productivity growth and policies that could constrict trade, the IMF said. It did not specifically mention the Trump administration's "America First" trade agenda aimed at reducing US trade deficits and turning away more imports.
"One salient threat is a turn towards protectionism, leading to trade warfare," Obstfeld said, adding this "would result in a self-inflicted wound that would lead to higher prices for consumers, lower productivity and therefore, lower overall real income for households."
The IMF also said that risks to the global outlook also could come from a faster-than-expected pace of interest rate hikes in the United States, which could trigger a sharp rise in the dollar and disruptive capital outflows from emerging markets.
Trump Era a New Challenge
In its 70-year history, the IMF has been no stranger to financial crises and policy disputes but now faces a new challenge: a US administration fundamentally opposed to some of its most important positions.
The Trump administration has vowed to dismantle much of the financial regulation put in place after the 2008 financial crisis. But the fund warns darkly that excessive deregulation could "increase the likelihood" of another meltdown.
The IMF warns of the economic dangers of climate change. But the Trump administration casts doubt on its existence and seeks to revive its coal industry while threatening to withdraw from the 2015 Paris Agreement on emissions.
It is nevertheless the volatile question of global trade that holds the greatest potential for friction between the IMF and its largest shareholder.
Since the US presidential campaigns, the IMF has repeatedly warned about the dangers of "inward-looking" protectionist measures and defended multilateralism.
It is hard to see this as anything but an implicit counter-argument to Trump, who has vowed to raise trade barriers and restrict immigration, who has assailed the free-trade promoted by the World Trade Organization and on Tuesday signed an executive action to promote US firms over foreign ones in federal contract awards.