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Despite global instability, IMF says world economy show 'remarkable resilience'

LEILA FADEL, HOST:

Despite instability in parts of the world right now, the global economy is showing, quote-unquote, "remarkable resilience." That's the verdict of the International Monetary Fund. It ever so slightly upgraded its forecast for global economic growth this week to 3.2%, still short, though, of pre-pandemic levels. The announcement comes as experts from around the world gather here in Washington, D.C., for the IMF and World Bank's annual spring meetings, where they discuss economic issues. Despite the improved outlook, the fund is still worried about inflation and geopolitical crises. Joining us to talk more about this is the IMF's chief economist, Pierre-Olivier Gourinchas. Good morning. Thanks for being on the program.

PIERRE-OLIVIER GOURINCHAS: Good morning. Thank you.

FADEL: So between the tense economic competition that we're seeing from China and the U.S. and an ever broadening conflict in the Middle East, what drives this rosier-than-expected outlook from the IMF?

GOURINCHAS: Well, we've had a lot of resilience in many parts of the world. And one of these parts is, of course, the United States. The U.S. economy has been doing very well, both last year and is expected to do quite well this year. We're projecting a growth rate of 2.7% for the U.S. economy, and that's marked up from our previous projections. So there is lots of strength there - strong productivity, strong labor growth, quite a bit of investment and strength on the demand side. But it's not just the U.S. story. There is a lot of strength also in other parts of the world, and large emerging market economies are doing well. China's - some China numbers came out yesterday and they are quite strong, as well. So we're seeing quite a bit of strength in this global economy that seems to be overcoming the crisis of the last four years.

FADEL: Now, just this morning, we did get some pretty important news that the Biden administration plans to triple the tariffs on aluminum and steel imports from China. Does that at all change or impact your outlook on global economic growth?

GOURINCHAS: Well, it's not changing, materially, the outlook at this point, but it's certainly one of those things that we're concerned about. One of the things we flag in our report we've been concerned about for some time now is what we call geoeconomic fragmentation, the surge in trade disruptive measures between countries. And that's certainly something that is not a factor that would lead to global growth and prosperity. And so we're concerned when we're hearing that additional measures could be taken. Historically, it's not clear that they achieve the intended objective of protecting workers and jobs. They tend to lower productivity. They tend to lower growth. So we're a bit concerned about that.

FADEL: Now, you mentioned this fragmentation, these trading blocks of countries that coalesce around political interests. So when you talk about your concern here, you specifically warn that restrictions on trade and investment could fuel and impact economies. Are you referring to tariffs like these that the Biden administration plan to impose in any counter restrictions that may come?

GOURINCHAS: We're concerned because we've seen an explosion in number of trade restrictive measures there. To give you an order of magnitude, we have about 3,000 such measures that were taken in 2023, about 3,200 in 2022. And that's a tripling compared to what we had just a few years ago. And these measures, by restricting trade, they prevent the flow of goods. They can contribute to price pressures because, of course, if we have a higher cost of trading than shipping goods, then that is going to be impacting activity and inflation. And overall, they lead to a lot of tensions and fragmentation and they reflect the geopolitical environment in which we live right now.

FADEL: As we speak, there's growing concern about the now direct conflict between Iran and Israel in the region after the weekend attacks from Iran towards Israel, clearly dangerous for people's lives, but also the world economy - world's economies. I'm just going to play what U.S. Treasury Secretary Janet Yellen said yesterday in a press conference.

(SOUNDBITE OF ARCHIVED RECORDING)

JANET YELLEN: From this weekend's attacks to the Houthi attacks in the Red Sea, Iran's actions threaten the region's stability and could cause economic spillovers.

FADEL: I mean, could you lay out what that spillover could look like and just how intense that impact could be on global economies?

GOURINCHAS: Yeah. One of the concern there, of course, is the region is really critical for oil shipments. And it's also - some of the shipping lanes here are through the Red Sea, the Suez Canal are very important for global trade. So if we had further escalations of geopolitical tensions in that part of the world, you could see much higher oil prices. You could see higher cost of shipping. That would impact, of course, inflation, and that would tend to weigh down on global activity. We have run such a scenario in our report. We find that if oil prices were to increase by 15%, then inflation could increase by 0.7%, and activity would have to come down because central banks would also respond by increasing interest rates.

FADEL: That's Pierre-Olivier Gourinchas, chief economist at the International Monetary Fund. Thank you so much for your time this morning.

GOURINCHAS: Thank you. Transcript provided by NPR, Copyright NPR.

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