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The global economy is booming. So why is the mood among politicians so gloomy?
“The current strong period will not last long,” said Maurice Obstfeld, chief economist at the International Monetary Fund, who forecasts a solid global economic expansion in 2018 to 3.9%, he said when he released the Fund\’s latest forecast. His chief executive, IMF Managing Director Christine Lagarde, made similar comments, saying: “The current outlook looks bright, but dark clouds are already visible.
The pessimism of economic policymakers attending the IMF and World Bank Spring Meetings in Washington this week is in stark contrast to what is happening in the financial markets. So what are economists most concerned about? Are their own political preferences influencing their forecasts? Or is the global economy truly under threat, despite its apparent prosperity? Let\’s take a look at some of the interrelated threats that economists are observing.
Concerns about a trade war
Donald Trump tweeted last month that trade wars are good and easy to win. Instead, he sees a catastrophic risk of a cascade of Trump tariffs and retaliatory measures that would disrupt corporate supply chains and cause a downturn in global trade.
[A World of Financial Imbalances
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Trade frictions are not the only concern of the world\’s political leaders. They are also focused on new financial imbalances and the risk that they could cause or exacerbate further economic downturns.
[high debt, low interest rates, and the next recession
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Rather than taking advantage of periods of stability and prosperity to pay down debt, some of the most important economies have chosen the opposite path. For example, in the U.S., public debt levels have increased, while in China private debt levels have increased.
[Concerned
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Central bankers, finance ministers, or IMF officials often tend to worry about potential economic volatility and have more faith in the international institutions on which the global trading system is based than the general public. And it is precisely in this regard that the Trump administration is deeply skeptical.