IMF deputy MD warns on uncertain US policy, rising protectionism

Deputy Managing Director of the International Monetary Fund (IMF), Mitsuhiro Furusawa speaks during the inauguration of the XIV Regional Conference for Central America, Panama, and the Dominican Republic on Nov 17, 2016.
Deputy Managing Director of the International Monetary Fund (IMF), Mitsuhiro Furusawa speaks during the inauguration of the XIV Regional Conference for Central America, Panama, and the Dominican Republic on Nov 17, 2016.PHOTO: AFP

TOKYO (REUTERS) - Questions remain over the United States' growth outlook due to uncertainty over the new administration's policies, while rising protectionism in advanced economies could affect Asia's prosperity, a senior International Monetary Fund official said.

Asia continues to perform strongly and the near-term outlook remains strong, but it faces risks, Mitsuhiro Furusawa, an IMF deputy managing director told a seminar in Tokyo on Thursday (Feb 2).

"Uncertainties could contribute to financial volatility in the coming months," Furusawa said, calling for governments to maintain flexible exchange rates, use macro-prudential policies and keep stronger reserves buffers to cope with capital flow volatility.

Global markets became buoyant after Trump's victory in November on expectations for his reflationary policy to boost US economy, but investors have grown cautious recently as his protectionist views cloud the outlook for global trade.

In mid-January, the IMF raised its forecasts for US growth to 2.3 per cent this year, instead of 2.2 per cent, and 2.5 per cent in 2018, from 2.1 per cent previously. But these forecasts remain uncertain, said Furusawa, a former Japanese vice finance minister for international affairs.

China's reliance on policy stimulus is another risk, he added, even as the IMF revised up its 2017 growth projection for the world's second largest economy - to 6.5 per cent from 6.2 per cent - on expectations of continued fiscal policy support.

While China's stimulus helps sustain near-term growth, it entails a continued rise in the credit-to-gross domestic product ratio, he said.

Furusawa said there are also "upside risks" relating to the ongoing rebalancing of China's economy towards consumption and services.