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IMF Forecasts Increased World Economic Growth Despite Rising Protectionism

The good times may not last long, the IMF warns.

By Robbie Gramer, a diplomacy and national security reporter at Foreign Policy.

April 18, 2017, 11:58 AM

And now for a glimmer of good news: the world economy is slated to grow faster this year than previously expected, according to the International Monetary Fund, which boosted its short-term global economic growth forecast for the first time in six years.

In an April update to its World Economic Outlook report, the IMF nudged its growth forecast up from 3.4 percent to 3.5 percent this year and 3.6 percent next year, thanks to broad-based increases in global trade, manufacturing, and market outlook. But the IMF added a big asterisk to its outlook: the good times may not last long if trade protectionists get their way.

In its updated report, the IMF said better than expected economic growth in Europe, Japan, and China, as well as an uptick in global manufacturing helped buoy the world economy. An increase in commodity prices also helped stagnating global inflation rates to recover — good news for developed economies.

The updated growth forecast is a welcome sign after years of a slow global recovery from the 2008 financial crisis. The IMF isn’t popping the champagne bottles yet, however. “Whether the current momentum will be sustained remains a question mark,” IMF chief economist Maurice Obstfeld said. “The world economy still faces headwinds.”

One of those headwinds is the rising global chorus of trade protectionism, whose music conductor is Donald Trump. Trump harnessed trade protectionism in his anti-establishment wave to the White House and stacked his administration with a coterie of protectionists pushing policies that trade experts say make no economic sense.

“Inward-looking policies threaten global economic integration and the cooperative global economic order, which have served the world economy, especially emerging market and developing economies, well,” the IMF wrote, in a thinly veiled slight at Trump and some European leaders flirting with their own forms of protectionism.

The IMF also targeted Trump’s plans to deregulate financial markets, though not explicitly. Loosening financial rules “may imperil global financial stability and raise the risk of costly financial crises down the road,” the IMF wrote.

Trump isn’t the only thing keeping IMF economists up at night. Another concern is China’s precarious economic growth. It relies on “domestic credit growth so rapid that it may cause financial stability problems down the road,” Obstfeld warned. And other emerging markets are dealing with less-than-stellar performances, from India’s controversial currency exchange initiative to Brazil’s deep recession.

While emerging markets grapple with their internal problems, the IMF said the developed world may not be much help. Emerging markets could face a “less supportive external environment” than they enjoyed in decades past (read: more market volatility, growing public debt, rising geopolitical tensions, and trade protectionism from the developed world). This could hamper growth prospects for developing economies further, the IMF warned.

Photo credit: TIM SLOAN/AFP/Getty Images

Robbie Gramer is a diplomacy and national security reporter at Foreign Policy. Twitter: @RobbieGramer