Protectionist Trade Policies Seen as Threat to Workers

By Kathryn McConnell
USINFO Staff Writer

Washington - Countries need do more to help workers who have not gained from increases in global trade and competition, according to a new report by the International Monetary Fund (IMF).

The IMF, in the World Economic Outlook it issued April 11, cautions that protectionist forces could "undercut" trade and foreign investment, reversing gains from an increasingly integrated global economy.

The report's release preceded the April 14-15 joint spring meetings in Washington of the IMF and World Bank.

A combination of technological progress, trade and finance systems that are increasingly global and more resilient macroeconomic policies have laid the foundation for "superlative" global growth, but countries are not doing enough to prepare for increasing fiscal challenges, Simon Johnson, director of the IMF’s research department, told reporters April 4.

Countries need to do more to improve their education systems, and create more flexible labor markets and welfare systems that can help workers adjust to a more globalized economy, he said.

Johnson also said that countries need to develop public finance systems to cover increasing pension and health care costs related to aging populations.

However, the report provided an upbeat outlook, saying that overall economic risks to the global economy have declined since the IMF last reported its assessment of risks in September 2006, Johnson said.

He said problems related to the slumping U.S. housing market are not expected to spread to other countries.

U.S. economic growth is projected to be 2.2 percent in 2007, down from 3.3 percent in 2006, according to the report.

Even if the U.S. economy were to slow further, Johnson said, risks to other countries' economies "should be manageable" because over the past 20 years many countries have strengthened their economic policies.

Global economic growth was 5.4 percent in 2006, and is expected to dip to 4.9 percent in 2007. "Overall, taking the five-year period of 2003-07 as a whole, the global economy is achieving its fastest pace of sustained growth since the early 1970s," the report said.

Johnson said global growth can be sustained at approximately 5 percent "for some time to come."

In the Middle East, growth is expected to moderate slightly in 2007 to 5.5 percent from 5.7 percent the previous year. Although the region's oil exporters saw solid growth in 2006, the growth was tempered by a decline in oil prices since August 2006 and some cuts in output, according to the report.

The Euro area of 13 countries – European Union members that have adopted the euro as currency - grew at its fastest pace in six years in 2006 - 2.6 percent. The pace likely will slow slightly to 2.3 percent in 2007, partly reflecting fiscal tightening in Germany and Italy and the effects of past monetary tightening, Johnson said.

Japan's economic expansion has "regained its footing" and is projected to grow 2.3 percent in 2007, the same rate as in 2006, according to the report.

Growth in Europe's emerging economies is projected to slow from its 6 percent pace in 2006 to 5.5 percent in 2007, yet the region will continue to benefit from high rates of foreign investment, the report said.

Growth in the former Soviet states will moderate from 7.7 percent in 2006 to 7 percent in 2007, with solid performance in the region's energy sector. That region’s growth rate is second only to that of emerging Asia.

Emerging and developing countries - led by China and India - are expected to have impressive growth in 2007 - 8.4 percent - due to "favorable financial condition and in some cases from strong commodity prices," according to the report.

China is expected to grow by 10 percent in 2007, down from 10.7 percent in 2006. India likely will grow 8.4 percent, down from 9.2 percent the previous year. "Overheating remains a risk to India's economy," Johnson said.

Growth in Latin America is projected to slow slightly from 5.5 percent to 4.9 percent, but the region's outlook is good as most of its countries continue to build credible macroeconomic frameworks and reduce their economies' vulnerabilities.

The outlook in Africa is "very positive" with continued progress in macroeconomic stability and rising oil production in a number of countries, Johnson said. Growth is expected to be 6 percent in 2007, up from 5.5 percent in 2006.

The full text of the report and a transcript of Johnson’s April 4 press briefing are available on the IMF Web site.