IMF predicts 3.9% world economic growth for 2018 and 2019

In its latest World Economic Outlook, the International Monetary Fund has continued its earlier prediction of a 3.9% world economic growth rate for this year and the next. 

IMF Chief Economist Maurice Obstfeld (second from the right) briefs reporters about the organization’s World Economic Outlook survey at a press conference during the 2018 IMF Spring Meetings on April 17th, 2018. [Photo: China Plus/Liu Kun]

However, it also issued a warning about long-term challenges.

In its latest World Economic Outlook, the IMF uplifted its assessment for the growth of major economies around the world in 2018, with China up by 0.1% to 6.6%. The forecast for US growth in 2018 is 2.9%, up by 0.6 percent. The forecast for the eurozone is upgraded to 2.4 percent.

The Outlook warned, however, about a more sobering prospect in the long term, citing aging populations, falling rates of labor force participation, low productivity growth for developed economies, and a drop in commodity exports for developing economies.

The IMF also warned about financial instability caused by current global debt levels.

IMF Chief Economist Maurice Obstfeld says: "As our new Fiscal Monitor documents, global debt levels—both private and public---are very high, threatening repayment problems as monetary policies normalize in an environment where many economies face lower medium-term growth rates."

More importantly, Obstfeld cautioned that the recent international trade tensions, started by the United States with its announcement of steel and aluminum tariffs, could undermine global confidence and cause a derailment of growth.

Obstfeld said the public should realize that the reason why some people in developed economies see little benefit from globalization is not because of trade practices, but because of technological transformation.

"These trends are more due to technology change than to trade. Governments need to rise to the challenges of strengthening growth, spreading its benefits more widely, broadening economic opportunity through investments in people, and increasing workers' sense of security in the face of impending technological changes that could radically transform the nature of work. Fights over trade distract from this vital agenda, rather than advancing it."

Allegedly, the US trade moves are aimed at lowering US trade deficits with its trading partners. Obstfeld, on the contrary, said that the US is prescribing the wrong medicine for its trade deficit problem and its current actions will only increase the figures.

"These initiatives will do little, however, to change the multilateral or overall US external current account deficit, which owes primarily to a level of aggregate US spending that continues to exceed total income. Recent US fiscal measures will actually widen the US current account deficit."

To boost public confidence and address trade disputes, Obstfeld said national governments should heed the rules of international organizations.

"Coping with inequitable trade practices, including intellectual property concerns, requires dependable and fair dispute resolution within a strong rule-based multilateral framework. There's room to strengthen the current system rather than risk bilateral fragmentation of international trade. Plurilateral arrangements, if consistent with multilateral rules, can also provide a useful springboard to more open trade."

At a press conference briefing on the recent World Economic Outlook, the IMF also welcomed China's recent financial reforms, saying that further opening up of the Chinese financial market will not only encourage healthy global competition, but also improve the efficiency of the international trade system.