IMF Warns Against Protectionism, Relaxing Banking Rules But Raises Global Growth Forecasts

The International Monetary Fund predicted on Tuesday that the overall global economic growth is set to reach 3.5 percent this year and 3.6 percent in 2018.

As that was a growth in the investment levels in advanced economies and as the macro economic conditions eased for commodity exporters, the Fund has raised its growth forecasts slightly from estimates released last October.

However, with structural issues holding back economic development, the IMF warned that risks to global growth remain to the downside.

“With persistent structural problems—such as low productivity growth and high income inequality—pressures for inward-looking policies are increasing in advanced economies. These
threaten global economic integration and the cooperative global economic order that has served the world economy, especially emerging market and developing economies, well,” the International Monetary Fund said in its latest World Economic Report.

While the IMF cautioned against the new US administration’s protectionist views, on expectations that fiscal policy will be eased, the institute led by Christine Lagarde revised upwards its forecasts for the U.S. economy. Up from 1.6 percent last year, the U.S. is expected to expand 2.3 percent this year.

“Downside risks stem from several potential factors,” The Fund said, including, “an inward shift in policies, including toward protectionism, with lower global growth caused by reduced trade and cross-border investment flows.”

There will be a sharp dollar appreciation, which could hurt emerging economies, if the Federal Reserve decides to raise rates at a faster pace, the IMF also said. This is because as they borrow in dollars, their debt levels would increase.

Furthermore, concerns against a relaxation of financial regulation wads also raised by the Washington-based institution. Since he believes the current regulation hinders lending to the real economy. U.S. President Donald Trump has plans to soften rules for banks. But this could increase the likelihood of new financial crises, the IMF believes.

While the Fund warned that the Chinese economy was over-relying on government stimulus and credit to maintain growth, it also at the same time raised the growth forecast for the second largest global economy.

“The resulting persistent resource misallocation, however, raises the risk of a disruptive adjustment in China,” the IMF said.

China is expected to grow 6.6 percent in 2017 and 6.2 percent the year after.

(Adapted from CNBC)

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