The International Monetary Fund’s chief economy has expressed optimism over the growth of the world economy.
IMF Says Global Economy Gaining Momentum
Maurice Obstfeldt, IMF chief economist wrote in the new World Economic Outlook that the world could be at a turning point.
The Outlook report predicts that this year the economy will grow at a rate of 3.5%, up from 3.1% forecasted in fiscal year 2016.
The UK economy is forecast to grow by 2% this year, significantly higher than any of the key advanced economies apart from the US.
The forecast for Britain is only slightly lower than IMF’s prediction of 2.2% last year prior to the Brexit referendum.
The new forecast reflects the current performance of the British economy, which seems to have not been affected drastically following the referendum, contrary to what the IMF and other independent economists had expected.
However, the IMF still expects the impact to be adverse in the long term.
The IMF also pointed that certain trends could threaten its global projections. These include trends such as trade warfare and an increase in protectionism.
Nevertheless, the latest report is the most optimistic than it has been for a while. Indeed, since the 2008 financial crisis, the IMF was concerned that the global economy was failing to generate momentum.
The improvements in commodity prices has also aided in dispelling worries over deflation, which has been seen as a major threat, especially in advanced countries.
Interestingly, the report forecasts that none of the larger economies will suffer a fall in economic activity this year or the next.
Russia and Brazil in particular, which have been embroiled in domestic and international political challenges, are set to grow, albeit weakly.
Additionally, the shrinking of middle skilled jobs in developed economies due to continued technological changes could threaten stability in these economies.
Increased global trade and technological changes combined with a slow recovery from the recent financial crises has had an adverse impact on those on lower incomes, which has led millions to be disillusioned with globalization .
The IMF says these trends could compel countries to take on more protectionist policies against immigration and trade.
Mr Obstfeldt noted, "Submitting to those pressures would result in a self-inflicted wound.”
He added, “This could lead to higher prices for consumers and businesses, lower productivity, and therefore, lower overall real income for households."
The report further indicates that a fragmented production system in many countries will increase the potential for economic hardship.