IMF on trade war: global economy might see reduced productivity

In light of the ongoing trade war between the US and China, emerging markets and the global economy might see reduced productivity and slower growth, according to the IMF.

The global economy is now expected to expand by 3.7 per cent in 2018 and 2019. Just three months ago, the international lender, IMF, had projected a growth of 3.9 per cent. The last time the IMF cut its growth projections was in July 2016—more than two years ago.

Economies around the world are likely to face the problem of aging populations. From a long term perspective, the fund predicts that the growth rate might stagnate at 3.6 per cent by 2022-2023.

Concentrating on the jobs market and creating policies that would cover citizens of different socioeconomic backgrounds, is crucial for the growth of emerging and advanced economies, Maurice Obstfeld, IMF’s Chief Economist said in a report.

Emerging markets are feeling the stress of rising interest rates, declining currencies and higher inflation stemming from the trade war tensions. If the trade war and dispute between Trump’s administration and China continues, the fund estimates that the global economy might see a fall of 0.8 per cent in 2020.

The cut in growth expectations comes prior to the annual meetings of IMF and the World Bank in Bali, Indonesia.

Tighter credit and less liquidity are some of the challenges that emerging countries are facing due to the trade war. The IMF also predicts that inflation will rise rapidly thanks to the rise in commodity prices. This will impact the workers and the economic well-being of the people working multiple jobs in the Southeast Asian countries as well--most of which are emerging nations.

“Inclusive fiscal policies, educational investments and ensuring access to adequate health care can reduce inequality and are key priorities,” Obstfeld said.