Final Thoughts

October 12, 2018

International Monetary Fund economists forecast global economic growth of 3.7 percent for 2018-19, 0.2 percentage point below their forecast six months ago. While still positive, the expansion has become less balanced and may have peaked in some major economies, the IMF reported in its October World Economic Outlook. Excerpts from the WEO report below clearly show the IMF believes trade tensions between the U.S., China and other nations pose a serious threat to the world economy:

“In the United States, momentum is still strong as fiscal stimulus continues to increase, but the forecast for 2019 has been revised down due to recently announced trade measures, including the tariffs imposed on $200 billion of U.S. imports from China. China and a number of Asian economies are also projected to experience somewhat weaker growth in 2019 in the aftermath of the recently announced trade measures….

“Risks to global growth skew to the downside in a context of elevated policy uncertainty. Several of the downside risks highlighted in the IMF’s April 2018 World Economic Outlook—such as rising trade barriers and a reversal of capital flows to emerging market economies with weaker fundamentals and higher political risk—have become more pronounced or have partially materialized. While financial market conditions remain accommodative in advanced economies, they could tighten rapidly if, for example, trade tensions and policy uncertainty were to intensify….

“Avoiding protectionist reactions to structural change and finding cooperative solutions that promote continued growth in goods and services trade remain essential to preserve and extend the global expansion….

“Escalating trade tensions and the potential shift away from a multilateral, rules-based trading system are key threats to the global outlook. Since the April 2018 WEO, protectionist rhetoric has increasingly turned into action, with the United States imposing tariffs on a variety of imports…and trading partners undertaking or promising retaliatory and other protective measures. An intensification of trade tensions, and the associated rise in policy uncertainty, could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade. Higher trade barriers would disrupt global supply chains and slow the spread of new technologies, ultimately lowering global productivity and welfare. More import restrictions would also make tradable consumer goods less affordable, harming low-income households disproportionately….

“Countries need to work together to tackle challenges that extend beyond their own borders. To preserve and broaden the gains from decades of rules-based global trade integration, countries should cooperate to reduce trade costs further and resolve disagreements without raising distortionary barriers. Cooperative efforts are also essential for completing the financial regulatory reform agenda, strengthening international taxation, enhancing cybersecurity, tackling corruption, and mitigating and coping with climate change,” asserts the IMF in a report that should serve as both a warning and a call to action.

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Tim Triplett

Executive Editor