The global economy continues to edge higher amidst a generally sunny outlook, but there are building risks to that growth trajectory, the IMF reports Tuesday in the latest World Economic Outlook.
“The broad-based expansion we saw that began in the middle of 2016 continues. After 3.8 percent global growth last year, we’re expecting 3.9 percent this year and next year,” said IMF chief economist Maury Obstfeld.
The biggest threat to that continued growth is if countries put up protectionist trade barriers, the IMF reports.
“A very important message, particularly now, is not to let tensions over trade distract policy makers from the long-run challenges of making growth stronger, more resilient and more inclusive.”
“There is a broad-based conflict involving big economies and many other economies, and if that is not resolved well it could undermine investment and the growth of trade which has been a wellspring for this recovery,” said Obstfeld.
He also pointed to the risk of rising debt levels, which are at their highest level since the Second World War.
“We also see that debt levels are historically high, including sovereign debt and those could pose a vulnerability as monetary policies normalize and interest rates rise,” said Obstfeld.
The WEO makes it clear that it is far easier and less costly to make needed reforms and adjustments during rising-growth periods.
“We don’t know when the next downturn will come, but we can be sure that it will come. We have to be ready. We need to monitor financial instability risks because those could be the trigger for that downturn,” said Obstfeld.
“We need to rebuild fiscal buffers so governments have the tools to support aggregate demand. We need to normalize monetary policy in a data-dependent fashion so that it too can be brought in to play.”