The IMF hopes that countries can work cooperatively to reduce excess imbalances in trade, savings and investment, IMF’s chief economist Maury Obstfeld told reporters Tuesday (July 24 in Washington.

 

“Excess imbalances remain generally unchanged compared to our last ESR, increasingly concentrated in advanced economies and the persistence of these imbalances in the world is fueling trade tensions between countries,” said Obstfeld addressing key findings in the External Sector Report: Tackling Global Imbalances amid Rising Trade Tensions.

 

“Secondly, the configuration of these imbalances does not pose an imminent danger but if unaddressed could threaten global stability down the road,” he warned.

 

The annual report by the IMF focuses on presenting a multilaterally consistent assessment of the largest economies’ external positions and policies. In a simplified way, it looks at countries’ aggregate current account status (commonly mis-referred to as a trade surplus or deficit).

 

The report points to Germany, the Netherlands, China and others as countries with higher-than-desirable – or excessive – surpluses. The US, United Kingdom, Argentina and Turkey are examples of countries with higher-than-desirable – or excess deficits.

 

The IMF is urging excess surplus countries like Germany to open their economies and boost spending on social safety nets and infrastructure spending such as expanding broadband internet coverage, Obstfeld said.

 

Meanwhile, excess deficit countries like the US and United Kingdom should take measures to reduce government spending and to encourage higher savings rates he added.

 

“The persistence of these global imbalances, and a mounting perceptions of an uneven playing field on trade are fueling protectionist sentiment. These impulses are misguided,” Obstfeld told reporters.

 

“An escalation of protectionist policies would mainly hurt domestic and global growth without much of an effect on current account imbalances as this year’s report also finds.”

 

Obstfeld pointed out that the report focuses mainly on the medium-term. The team also found that trade conflict and tariffs have a measurable, but relatively small impact on global growth when compared to other variables such as changes in productivity or fiscal policy.

 

But last week IMF projected that a widening trade war could shave off half-a-percent off global growth by 2020, which would be a lost $430 billion.

 

“I think we are in a position where we are at the top of a slippery slope and countries could draw back and say, ‘okay now it is time to improve the system,’ or they could continue down the path that they are on,” Obstfeld said, urging countries to pursue multilateral solutions to reduce trade tension.