Somber IMF describes the epic bind facing world economy

The International Monetary Fund joined a chorus of multilateral institutions urging countries to remove barriers to the shipment of medical supplies during the Covid-19 pandemic as a first step to addressing an epic bind facing the global economy.

“Trade restrictions on medical and health products should be avoided to help ensure that they are able to go to where they are most critical,”  the IMF said in its latest World Economic Outlook. The words echoed pleas from the head of the World Trade Organization last week to avoid market barriers like export controls and tariffs so “we pull each other up and not hold each other down.” 

It’s unclear if officialdom is listening. While some nations have lowered import duties to let in more emergency supplies, the University of St. Gallen’s tally of those adopting export restrictions is growing, too. A U.S. ban on exports of personal protective equipment, later clarified to include exemptions for Canada and Mexico, is a prime example of how protectionism can backfire in a crisis like this. 

Rufus Yerxa, president of the Washington-based National Foreign Trade Council, summed up the stakes for President Donald Trump’s approach this way: “We import far more PPE products than we export right now, so the administration should take care not to start a global free-for-all. At least they realized the importance of North American cooperation, but it should be broader than that.”

International commerce doesn’t need any help slowing down this year. The IMF projected global trade volume will plunge 11% in 2020 from a year ago after a 0.9% improvement in 2019 that was held back by the U.S.-China tariff battle. That outlook was a little less pessimistic than the WTO’s best- and worst-case scenarios for a collapse in cross-border commerce ranging from 13% to 32%.

Few nations escaped the IMF’s gloom. The economy of every major country except China, India, Indonesia, Vietnam and the Philippines will contract this year, but growth in those five will be just a fraction of their rapid paces of recent years. Even perennial battler Australia, which has gone nearly three decades without a recession, will watch its gross domestic product shrink — a whopping 6.7%, according to the IMF’s forecast.

Governments are caught in a quandary. Normally, a shock of this magnitude requires a lot of fiscal and monetary stimulus fast. “This time, the crisis is to a large extent the consequence of needed containment measures. This makes stimulating activity more challenging and, at least for the most affected sectors, undesirable,” the IMF said.

It was a stunning reversal in tone from three months ago, when the Washington-based IMF saw signs that a subdued global economy was poised to perk up, as a manufacturing slump bottomed out, and Beijing and Washington reached a truce in their nearly two-year long trade war.

Tuesday’s somber report — which unofficially kicks off the IMF’s spring meetings with the World Bank, held this year via video conference — described the “a grim reality” that has befallen the world economy. “This crisis is like no other,’’ the fund said.

Charting the Trade Turmoil

The fallout from the Covid-19 pandemic will probably result in global trade volumes of both goods and services plummeting 11% this year, the IMF said in its World Economic Outlook released Tuesday. That compares with a Jan. 20 forecast for 2.9% expansion. The fund sees this measure rebounding 8.4% in 2021.