World's poor looking to US, UK for economic wisdom

Sunday, September 23, 2018

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A decade after the global financial crisis of 2008 some lessons have been learnt and many of those seem to be forgotten already. One of the perennial economic policy mistakes is to let national political pride dictate economic policy.

The recent International Monetary Fund (IMF) report, 'Global Economic Prospects', points out that global economic growth has slowed and is expected to edge down over the next two years.

Growth in advanced economies is forecast to decelerate. The risks include disorderly financial market movements, escalating trade protectionism, and heightened geopolitical tensions.

According to the IMF, there is a need to boost potential growth by promoting international competitiveness, adaptability to technological change, and trade openness. These steps will help mitigate an expected growth slowdown over the next decade.

This month's IMF report on the United Kingdom's economy says economic growth has declined since the Brexit referendum in June 2016. Uncertainty over the terms of the European Union (EU) withdrawal has weighed on private sector activity.

Above-target inflation, following the sharp post-referendum sterling depreciation, has slowed real income and consumption growth. Investment is also likely to remain constrained as long as Brexit uncertainty weighs on firms.

“While all likely Brexit outcomes will entail costs for the UK economy by departing from the single market that now prevails, over time new trade agreements with countries outside the EU could eventually pare some of these losses for the UK,” the Fund said. “However, such agreements are unlikely to bring sufficient benefits to offset the costs imposed by leaving the EU.”

As the United States moves to escalate tariffs on imports from China, and Beijing indicates its intention to retaliate in kind, the jousting could erupt into a full-scale US-China trade war. This would be a triumph of national political pride over economic sense.

Intra-NAFTA trade is also in a fog of uncertainty, because a draft deal with Mexico has not been joined by Canada and has not been approved by the US Congress as required by the Trade Promotion Authority law. Nations have pride, but it must not crowd out sound economic policies.

The cost of economic folly is a slowing of global economic growth which will be felt everywhere. According to the World Bank's latest projections (September 2018), over the last 25 years, more than a billion people have lifted themselves out of extreme poverty, and the global poverty rate is now lower than it has ever been in recorded history.

The percentage of people living in extreme poverty globally fell to a new low of 10 per cent in 2015, down from 11 per cent in 2013, reflecting steady but slowing progress. The number of people living on less than US$1.90 a day fell during this period by 68 million to 736 million.

There are fewer people living in extreme poverty around the world, but the decline in poverty rates has slowed, raising concerns about achieving the goal of ending poverty by 2030.

The poor of the world are looking to the United States and the United Kingdom to choose economic wisdom over political pride.

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