China, EU and Japan make up for slower US, say IMF 

Better growth in China, the euro zone and Japan is making up for a slower-than-expected US economy and Donald Trump’s stalled economic promises as well as a faltering UK, the International Monetary Fund said on Monday. 

In its latest update, the IMF left its April forecasts for 3.5 per cent global growth this year and 3.6 per cent next year unchanged. But the lack of change in the world’s headline growth masked what the IMF said was a rotation in the sources of growth. 

The IMF began this year predicting that Mr Trump’s arrival in Washington would lead to a fiscal stimulus equivalent to 2 per cent of gross domestic product in the US that would help boost global growth. A failure by the Trump administration and Republicans in Congress to advance tax reform and infrastructure plans, however, led the Fund last month to downgrade its predictions for US growth this year and next to 2.1 per cent from 2.3 for 2017 and 2.5 for 2018. 

US GDP figures for the second quarter to be released on Friday are expected to show the economy bouncing back from a sub-par first quarter, which saw the US economy grow at an annual rate of just 1.4 per cent. 

But the IMF said it still had muted expectations for the US this year. Instead, it said, better than expected growth in other advanced economies would keep the economy on track for what Maurice Obstfeld, the IMF’s chief economist, called the “broadest synchronised upswing the world economy has experienced in the past decade”. 

Behind that broader recovery was a continuing pick-up in world trade, he said, with volumes of goods and services traded around the world expected to grow 4 per cent this year, or 0.2 percentage points faster than the IMF predicted in April. If that prediction holds it would see world trade once again growing faster than overall economic output despite the rising threats of protectionism articulated by Mr Trump and others. 

“There is now no question mark over the world economy’s gain in momentum,” Mr Obstfeld said. 

While the IMF downgraded its forecast for the UK to 1.7 per cent growth this year the rest of Europe was looking stronger than expected, the fund said. Thanks to better growth in Germany (1.8 per cent) and France (1.5 per cent) the IMF said it now expected the euro area to expand by 1.9 per cent in 2017. 

China is expected to grow 6.7 per cent this year after last week delivering better-than-predicted second-quarter growth. The IMF said it also expected China’s slowdown next year to be less dramatic, predicting 6.4 per cent growth in 2018. 

The IMF expects Japan, the world’s third-largest economy, to grow 1.3 per cent this year, raising its April prediction by 0.1 percentage points. 

Despite his optimism, Mr Obstfeld said the medium-term risks to the global economy — including that of protectionism — remained tilted toward the downside. 

In their report, IMF economists also warned that although the economic outlook was improving in the short term the long-term picture remained subdued. That “tepid longer-term growth also carries risks”, they said, pointing to stalling incomes and rising inequality in advanced economies. 

Mr Obstfeld cautioned that major emerging economies such as Brazil and Russia still face major economic challenges and that the IMF expected Latin America to grow slower than previously thought this year and next. 

What the IMF and others see as a structural shift lower in many commodity prices also continued to hit the terms of trade of many middle- and low-income countries, he said. In sub-Saharan Africa the IMF expected growth this year of 2.7 per cent this year, more than twice the 1.3 per cent growth seen last year. But that, the IMF said, “still is barely above the population growth rate, implying stagnating per capita incomes”.

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