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IMF Cites Trade Protectionism As Key Reason For Sluggish Trade

International Monetary FundThe International Monetary Fund (IMF) has said that rising protectionism across the world and poor trade was resulting in sluggish growth globally. IMF’s remarks came after the World Trade Organization (WTO) released its growth forecast for trade this year, which showed that for the first time ever the trade growth will be lower than GDP growth.

According to the WTO, the trade growth will be around 1.7 percent in 2016, much lower than the earlier estimate of 2.8 percent. This growth is the lowest since the 2008 financial crisis.

Roberto Azevêdo, the WTO's director general, urged world leaders to build on trade agreements and avoid policies that would worsen the situation, referring to U.S Presidential nominee Donald Trump’s calls for protecting U.S. businesses.

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The IMF has also added its voice saying economies need to build a comprehensive plan to boost recovery using monetary and fiscal policies. It however noted that central banks in economies with zero or negative interest rates are facing increasing challenges. The Fund has stated that the current rate scenario of low inflation was due to declining commodity prices and depressed goods prices.

IMF’s analysis has pointed that 75 percent of trade slowdown has been due to weak global activity but added that heightening trade barriers since 2008 has added to the problem.

In a statement, the IMF said

Even though the contribution of trade costs to the trade slowdown has been limited relative to weak economic activity so far, the dearth of new global policy initiatives to reduce these costs, along with the gradual rise of non-tariff barriers since the global financial crisis, could pose further risks to trade

IMF Managing Director Christine Lagarde has observed that trade is historically a growth driver and having trade barriers would harm the flow of goods and services between nations which could damage countries and growth prospects. She called any deliberate hampering of world trade an act of economic malpractice.

Lagarde has advocated that key economies of the world must implement aggressive policies to improve growth worldwide, saying that global growth was modest because polices were modest.

IMF stated that in order to ensure that industries and workers are able to withstand increased competition as a resulted higher inter-country trade flows and remain supportive of free trade, governments and policymakers must focus on boosting their competitiveness. The IMF has suggested that policies be put in place for social security nets and for establishing programs for improving skills through retraining, skill building and enhanced mobility.

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