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Global growth forecast raised

WASHINGTON

The International Monetary Fund (IMF) raised its 2017 global growth forecast on Tuesday due to manufacturing and trade gains in Europe, Japan and China, but warned that protectionist policies threaten to choke a broad-based recovery.

The IMF, whose spring meetings with the World Bank get underway in Washington this week, forecast that the global economy would grow 3.5 per cent in 2017, up from its previous forecast of 3.4 per cent in January.

In its latest World Economic Outlook, the Fund said that chronically weak advanced economies are expected to benefit from a cyclical recovery in global manufacturing and trade that started to gain momentum last summer.

The IMF lifted Japan’s 2017 growth projection by 0.4 per centage point from January, to 1.2 per cent, while the euro zone and China both saw a 0.1 per centage point growth forecast increase to 1.7 per cent and 6.6 per cent, respectively.

Meanwhile, the IMF held its 2017 U.S. growth forecast steady at 2.3 per cent, which still represents a substantial jump from 1.6 per cent growth in 2016, partly due to expectations that President Donald Trump will cut taxes and increase government spending. The IMF also revised Britain’s growth forecast to 2.0 per cent for 2017, up a half per centage point from January.

Obstfeld said an anticipated pullback in consumer spending after last year’s UK vote to leave the European Union had so far failed to materialise. He added that uncertainty over Britain’s

snap elections announced on Tuesday would not necessarily change the outlook, but a clear mandate from the British people could help Brexit negotiations.

“There was already uncertainty on how the negotiation would go and what it’s final outlines would be. So, it may be that this is a tradeoff of a little more uncertainty before June 8 for less uncertainty later,” Obstfeld told a news conference.

Although growth looks to be strengthening broadly among advanced and emerging market economies as well oil and commodity exporters that are starting to benefit from a commodity price recovery, including Russia and Brazil, the IMF said the recovery remains fragile.

The outlook faces headwinds from chronically weak productivity growth and policies that could constrict trade, the IMF said. It did not specifically mention the Trump administration’s “America First” trade agenda aimed at reducing US trade deficits and turning away more imports.

“One salient threat is a turn toward protectionism, leading to trade warfare,” Obstfeld said, adding this “would result in a self-inflicted wound that would lead to higher prices for consumers, lower productivity and therefore, lower overall real income for households.”

Reuters