Global trade is slowing, and the IMF is urging countries to avoid further conflict, the Fund’s chief economist told reporters Wednesday in Washington, D.C.
The IMF released the annual External Sector Report, which focuses on trade imbalances and their causes Wednesday.
“The main short-term risks stem from an intensification of trade tensions or a disorderly Brexit which can have negative implications for global demand and global risk appetite. Which then in turn can affect economies that are highly dependent on foreign demand and on external finance,” said Gopinath.
The report found that overall current account surpluses and deficits reached 3 percent of world GDP in 2018: declining marginally but still well below pre-global financial crisis levels of a decade ago.
The ESR found that higher-than-warranted balances persist in the euro area as a whole, and in other advanced Asian economies (South Korea and Singapore). Lower-than-warranted balances continue in the US and UK primarily.
But with much attention paid to China, the Fund found that a narrowing current account surplus has put it broadly in line with fundamentals.
“A noteworthy development is the continued narrowing of China's current account surplus against a backdrop of greater exchange rate flexibility and real appreciation over the last decade. Its current account is now assessed to be line with fundamentals. Although achieving a lasting external rebalancing will require adopting further structural reforms including to reduce subsidies to state owned enterprises and reduce entry barriers in certain sectors as current expansionary fiscal and credit policies are gradually withdrawn,” said Gopinath.
The IMF has previously forecast that bilateral trade actions risk ‘self-inflicted wounds’ to countries that try to put them in place to protect their own industries and primarily lead to diversion to other countries.
“It is imperative that all countries avoid policies that distort trade. Recent bilateral trade actions have had no discernible impact on the global imbalances as external imbalances reflect macro policies that affect aggregate saving and investment. Instead higher tariffs have been associated with increased prices for consumers and a wing on global trade investment and growth, including by eroding confidence and disrupting global supply chains,” Gopinath said about the report’s findings.
“We are seeing global growth. Global trade growth slow, which tells you that this is not just about shifting of trade to different parts of the world but an actual overall reduction in in trade. So this is having a fundamental impact on global trade,” she concluded.
A full version of the report may be found at: https://www.imf.org/en/Publications/ESR/Issues/2019/07/03/2019-external-sector-report