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IMF Strengthens Global Economic Outlook, but Warns of Protectionism

The global upswing in economic activity is strengthening, with global growth projected to rise to 3.6% in 2017 and 3.7% in 2018, the International Monetary Fund said in its “World Economic Outlook” report.

Broad-based upward revisions in the Euro area, Japan, emerging Asia, emerging Europe, and Russia more than offset downward revisions for the U.S. and U.K., the IMF said, but the recovery is not complete.

The report said while the baseline outlook is strengthening, growth remains weak in many countries and inflation is below target in most advanced economies. Commodity exporters, especially of fuel, are particularly hard hit as their adjustment to a sharp step-down in foreign earnings continues.

While short-term risks are broadly balanced, medium-term risks are still tilted to the downside.

“For policymakers, the welcome cyclical pickup in global activity provides an ideal window of opportunity to tackle key challenges, namely to boost potential output while ensuring its benefits are broadly shared and to build resilience against downside risks,” the report said. “A renewed multilateral effort is also needed to tackle the common challenges of an integrated global economy.”

The growth forecasts for both 2017 and 2018 are 0.1% stronger than the April World Economic Outlook forecast. Growth is projected to rise over this year and next in emerging market and developing economies, supported by improved external factors—a benign global financial environment and a recovery in advanced economies.

[Read about the WTO’s outlook: WTO Upgrades Trade Outlook, but Warns of Risks Ahead]

Growth in China and other parts of emerging Asia remains strong, and the still-difficult conditions faced by several commodity exporters in Latin America, the Commonwealth of Independent States and sub-Saharan Africa show some signs of improvement. In advanced economies, the notable growth pickup is broad based, with stronger activity in the U.S. and Canada, the Euro area and Japan.

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The report said in the U.S., “given the significant policy uncertainty, the forecast now uses a baseline assumption of unchanged policies, whereas in April it assumed a fiscal stimulus driven by then-anticipated tax cuts.”

In China, the country’s 2017 forecast of 6.8% growth against 6.6% in April reflects stronger growth out-turns in the first half of 2017, as well as more buoyant external demand. For 2018, the revision mainly reflects an expectation that the authorities will maintain a sufficiently expansionary policy mix to meet their target of doubling real GDP between 2010 and 2020.

Growth forecasts have also been marked up for emerging Europe for 2017, reflecting stronger growth in Turkey and other countries in the region, for Russia for 2017 and 2018, and Brazil in 2017.

A shift toward protectionism would reduce trade and cross-border investment flows, harming global growth, IMF said. An inward turn in policies could be associated with increased geopolitical tensions, as well as with rising global risk aversion. Non-economic shocks can weigh directly on economic activity, while shaking confidence and market sentiment, and a faster-than-anticipated tightening of global financial conditions or a shift toward protectionism in advanced economies could exacerbate capital outflow pressures on emerging markets.

“For many of the challenges that the global economy confronts, individual country actions can be more effective if supported by multilateral cooperation,” IMF said. “Preserving the global economic expansion will require policymakers to avoid protectionist measures and to do more to ensure that gains from growth are shared more widely.”