President Donald Trump’s inward-looking protectionist policies built firmly on his populist “America First” slogan is undermining the historical US lead as the growth engine to drive global economy, according to latest International Monetary Fund’s headline figures.
The upshot: The world is leaning less on its biggest economy to sustain the global recovery.
The global economy will expand 3.5% this year, up from 3.2% in 2016, and by 3.6% next year; unchanged forecasts for this year and next from projections in April.
The drivers of the recovery, however, are shifting with the world relying less on the US and UK and more on China, Japan and the eurozone.
The IMF seems US growth at 2.1% this year and next, consistent with its June 27 annual assessment. In April, the fund forecast US growth of 2.3% and 2.5% respectively for 2017 and 2018 compared with an expansion by 1.6% in 2016.
For the Brexit-riven UK, the IMF chopped its growth forecast for this year by 0.3 percentage point to 1.7%.
Other countries are picking up the slack, though.
The IMF’s projection for growth in China is 6.7% for 2017 and at 6.4% for 2018, an increase of 0.2 points from three months ago. Japan is to grow at 1.3% this year, up 0.1 point from April, though IMF projects the economy will slow in 2018 to 0.6% growth.
The euro area as a whole will grow 1.9% this year, up 0.2 points from three months ago, and 1.7% in 2018, up 0.1 point. Canada will lead the Group of Seven, expanding at 2.5%, up 0.6 points from April.
The dollar fell to its lowest in 14 months last week as investors discounted the ability of the Trump administration to deliver on its economic agenda after efforts by the Republican Senate to overhaul healthcare collapsed.
Close to 10 years since the world was brought to the brink by the financial crisis that originated in the US, economies are still struggling to heal. While risks to the global outlook are “broadly balanced” in the near term, medium-term risks are tilted to the downside, the IMF said.
The US economy entered 2017 with a solid head of steam, driven by consumer spending and a pickup in business investment. But Trump’s stoking of trade tensions has put that momentum at risk.
Will America get greater with Trump’s policies? A group of Nobel Prize-winning economists gave Trump and his policy plans the thumbs-down. “There is a broad consensus that the kind of policies that our president has proposed are among the polices that will not work,” said Joseph Stiglitz at the onset of this year.
In a highly globalised world, free trade is good for all, creating wealth for every country by boosting competitiveness. But the populist backlash that has helped propel Trump to victory in the presidential race has only brought about protectionist walls to further divide the world.
