The International Monetary Fund’s policymaking committee says a strong world economy is threatened by increasing tension over trade and countries’ heavy debt burden. Longer-term prospects are clouded by sluggish growth in productivity and ageing populations in wealthy nations.
In a statement on Saturday at the end of three days of meetings, the lending agency urged countries to take advantage of the broadest-based economic expansion in a decade to cut government debt and to enact reforms that will make their economies more efficient.
The IMF expects the world economy to grow 3.9 per cent this year and next, which would be the strongest since 2011. But an intensifying dispute between the US and China over Beijing’s aggressive attempt to challenge US technological dominance has raised the prospect of a trade war that could drag down worldwide growth.
The US has resisted pressure to back off President Donald Trump’s protectionist America First trade policies.
Treasury Steven Mnuchin urged the IMF to do more to address what the Trump administration says are unfair trade practices and called on the World Bank to steer cheap loans away from China and towards poorer countries.
Unfair trade policies ‘impede stronger US and global growth, acting as a persistent drag on the global economy’, Mnuchin said.
He appealed for the IMF to go beyond its traditional role as an emergency lender for countries in financial distress and said it should more closely monitor the practices of countries that persistently run large trade surpluses.
‘The IMF must step up to the plate on this issue, providing a more robust voice,’ Mnuchin said. ‘We urge the IMF to speak out more forcefully on the issue of external imbalances.’
The World Bank, he said, must not back away from shifting its lending from fast-growing developing countries such as China to poorer nations. In a speech prepared for the bank’s policy committee, Mnuchin urged the bank to aim its resources at ‘poorer borrowers and away from countries better able to finance their own development objectives’.
Many have used the finance meetings to protest President Donald Trump’s protectionist trade policies, which mark a reversal of seven decades of US support for ever-freer global commerce.
‘We strongly reject moves toward protectionism and away from the rules-based international trade order,’ said Mar Guomundsson, governor of the Central Bank of Iceland. ‘Unilateral trade restrictions will only inflict harm on the global economy.’
While finance officials struggled to find common ground with Washington on trade, they agreed on the importance of co-ordinating other policies in an effort to sustain the strongest global economic expansion since the 2008 financial crisis.
In addition to wrangling over trade, finance officials from the Group of 20 powerful economies focused on geopolitical risks and rising interest rates, two threats to growth.
The US has rattled financial markets with a series of provocative moves in recent weeks. Finance leaders repeatedly sounded warnings about a potential trade war.
‘The larger threat is posed by increasing trade tensions and the possibility that we enter a sequence of unilateral, tit-for-tat measures, all of which generate uncertainties for global trade and GDP growth,’ Roberto Azevedo, director-general of the World Trade Organisation, told the IMF’s policy committee.
French Finance Minister Bruno Le Maire said the steel and aluminium tariffs could lead to retaliation by other countries and ‘a significant risk that the situation could escalate’. He said ‘tensions between the US and China have taken a worrying turn’.