The International Monetary Fund sees growth slowing this year in the United States and the euro area — and it’s warning the world against barriers to trade as it prompts central banks to keep the money flowing.
Overall global growth is expected to expand at 3.1 percent in 2016, according to the IMF’s “World Economic Outlook” released Tuesday. That’s unchanged from its July forecast. But advanced economies, which include the United States, will slow this year to 1.6 percent growth. That compares with 2.1 percent last year and a July IMF forecast of 1.8 percent.
Next year, global growth is expected to improve to 3.4 percent, as a slowdown in advanced economies should be offset by a pickup in emerging market and developing economies, the IMF said. U.S. growth is also forecast to pick up to 2.2 percent in 2017 on diminishing pressures from low energy prices and dollar strength.
However, the IMF warned that the “persistent stagnation, particularly in advanced economies,” could fuel “populist calls” for restrictions on trade and immigration.
“It is vitally important to defend the prospects for increasing trade integration,” IMF chief economist and economic counsellor, Maurice Obstfeld, said in the global lender’s outlook. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”
‘Maintain easy monetary policies’
One of the first examples of growing protectionist calls came this June, when the United Kingdom voted to leave the European Union. The IMF said uncertainty stemming from the so-called Brexit will dampen investor confidence. It sees the U.K. expanding at only 1.8 percent this year, and sees a deepening slowdown to 1.1 percent next year. The U.K. grew at a 2.2 percent pace last year.
Euro area growth is expected to reach only 1.7 percent this year and continue slowing to 1.5 percent next year, after growing at a 2.0 percent pace last year.
To combat slowing growth, the IMF called for advanced economies to “maintain easy monetary policies,” including potential expansion of asset purchases in Europe, and increase government spending on education, technology and infrastructure. Many countries also need reforms to increase participation in labor markets, improve the match between skills and jobs, and a reduction in barriers to market entry, the IMF said.
As for China, the IMF said the country’s debt situation is “increasing at a dangerous pace” and the government should take steps to limit credit expansion and “cut off support to unviable state-owned enterprises.”
China is forecast to continue slowing, albeit holding above 6-percent annual growth with forecasts of 6.6 percent this year and 6.2 percent next year. But that slowdown comes amid a transition toward an economy supported by services and consumption, which the IMF said will build “foundations for a more sustainable long-term expansion.”