28.1 C
New Delhi
Sunday 20 October 2019
Economy US fiscal, trade policies create risks to global economy,...

US fiscal, trade policies create risks to global economy, warns IMF

The loosening of the purse strings in Washington raises the risk of an “inflation surprise” for markets, the IMF warned


- Advertisment -

Washington: US tax cuts and public-spending hikes are increasing risks to the global economy by boosting debt, potentially stoking inflation and pushing the dollar higher, the International Monetary Fund has warned.

Fiscal stimulus backed by the Trump administration and the Republican-controlled Congress will give a short-term boost to the US and many of its trading partners, the IMF staff said in a statement Thursday on its annual checkup of the U.S. economy. However, adding fiscal measures at a time when the economy is growing “will elevate the risks to the US and the global economy,” said the Washington-based fund.

The loosening of the purse strings in Washington raises the risk of an “inflation surprise” for markets, the IMF warned, adding a rapid rise in price pressures would force the Federal Reserve to hike interest rates faster than expected.

Meanwhile, the punitive import duties the US has imposed and threatened could harm the world economic recovery by “catalyzing a cycle of retaliatory responses” and interrupting global supply chains, the report said.

On the eve of an expected White House announcement of the list of perhaps $50 billion in Chinese goods that will be hit with 25% tariffs, IMF Managing Director Christine Lagarde said trade wars had no winners. If there is tit-for-tat retaliation from US trading partners, which they have threatened, there will be “losers on both sides,” Lagarde told reporters.

And that outcome would have a “serious” economic impact on the US and global economies, she said, including by causing inflation to accelerate.

While the direct economic impact is hard to calculate since it will depend on the size and timing of the responses, trade conflict could undermine confidence and cause businesses to hold off on investments, of which there already were signs in Europe, she said.

The fund’s economists indicated Trump’s focus on reducing trade deficits with specific countries was misplaced. Instead, trading partners should work on “securing more ambitious bilateral and plurilateral agreements on trade and investment.”

Trump came to power in part on a wave of anger over immigration and international trade perceived as undermining workers’ wages and American living standards.

And while Trump has crowed repeatedly about the strong US economy and the beneficial impact of the massive income tax cuts passed in December, the reforms have a high budgetary cost and could fuel faster inflation, the IMF said.

That, in turn, would prompt the Federal Reserve to raise interest rates more aggressively, setting off a chain of spillover effects on the global economy, and financial markets, especially emerging markets, the IMF cautioned.

Lagarde also noted that the recent US economic stimulus could increase US imports, which, along with a strengthening US dollar, would, in fact, worsen the trade and current account deficits.

The IMF projects the Fed’s preferred inflation measure will increase 2.8% this year and 2.4% next year, with a growth of 2.9% and 2.7%, slowing to 1.9% in 2020.

“The combined effect of the administration’s tax and spending policies will cause the federal government deficit to exceed 4.5% of GDP by 2019. This is nearly double what the deficit was just the years ago.” Lagarde said the time to address the deficit was when the economy was strong.

Subscribe to our newsletter

You will get all our latest news and articles via email when you subscribe

The email despatches will be non-commercial in nature
Disputes, if any, subject to jurisdiction in New Delhi

Leave a Reply


Karva Chauth: Faith, legend behind viewing the moon through a sieve

The legend and Karva Chauth rituals vary across Rajasthan, Uttar Pradesh, Himachal Pradesh, Madhya Pradesh, Haryana, Punjab, Delhi and, in south India, Andhra Pradesh

Pakistan-Occupied Kashmir, Here We Come!

Study Wuhan and Mamallapuram in the backdrop of the fact that things are not quite working out in China-Pakistan economic relations, notwithstanding the urge of the communist state to contain India and that of the Islamic state to challenge it

Slowdown Has Reasons Other Than GST, Demonetisation

When all economic sectors decline, the mood of the market turns sombre, turning investors all the more reluctant to pump in money; the interdependence of industries means that the slowdown suffered by one would affect many

Where China & India, Resisting & Improving Democracy, Meet

What you see in Hong Kong is China resisting democracy; what you see in Kashmir is India promoting it; a reasonably capitalist China does not offer freedom politically but India, held back at times by the choice of the people, is still opening up; there could be a point of convergence as the two nations move in opposite directions

Omega-3: Study published in BMJ claiming no benefit for type 2 diabetes has myopic vision

Most respondents in the omega-3 study published in the BMJ are from Europe and North America; such results can hardly be applied worldwide
- Advertisement -


PIL before Ayodhya verdict to scrap Act on places of worship

Hindus would hardly complain that their faith is held ransom to legality as the PIL challenges their right to question some historical wrongs

Indrani Mukerjea claims to have bribed Chidambarams with $ 50,00,000

When Indrani and Peter Mukerjea approached Chidambaram for FIPB approval for FDI in INX Media, the then finance minister had allegedly sought the bribe

‘Moulding of relief’ affidavits for Ayodhya filed in Supreme Court

Know the provision of moulding of relief given to all parties to the dispute when they have argued their respective cases but the verdict is as yet reserved

Kamlesh Tiwari murder suspects Rashid, Faizan, Mohsin arrested

A Bijnor-Surat Islamic link emerges in the case of murder of pro-Hindu activist Kamlesh Tiwari in the preliminary investigation by UP Police

Jio, Airtel spar over maximum ring duration in outgoing calls

Airtel wants to keep the phone ringing time of 45 s during the outgoing call. But Jio is trying to reduce this time to 25 s

You might also likeRELATED
Recommended to you

%d bloggers like this: