Concerns about global trade have reached nearly 10 times the peaks seen in the previous two decades, the International Monetary Fund (IMF) has said.”Globally, the trade policy uncertainty index is rising sharply, having been stable at low levels for about 20 years,” it said in a blogpost.
“The World Trade Uncertainty index jumped in the past year 10-fold from previously recorded highs as the trade war”>US-China trade war escalated,” said the blogpost written by Hites Ahir, Nicholas Bloom and Davide Furceri.
The index is based on reports from the Economist Intelligence Unit (EIU) dating back to 1996 and borrows from methodology used in the IMF’s own World Uncertainty Index.
To calculate the new gauge, IMF researchers counted how often the word ‘uncertainty’ appears in the EIU reports near terms such as ‘tariffs,’ ‘protectionism‘ or ‘trade.’
The index shows increased uncertainty starting around the third quarter of 2018, coinciding with a heavily publicised series of tariff increases by the United States and China. It then declined in the fourth quarter of 2018 as US and Chinese officials announced a deal to halt the escalation of tariffs at the G-20 meeting in December in Buenos Aires.
It significantly spiked again in the first quarter of 2019 following a substantial expansion of American tariffs on imports from China on March
“We also find that increases in uncertainty foreshadow significant output declines. Based on our estimates, the increase in trade uncertainty observed in the first quarter of 2019 could be enough to reduce global growth by up to 0.75 percentage point in 2019,” said the IMF blogpost released on Monday (local time).
High levels of trade uncertainty have been recorded in key US trading partners like Canada, Mexico, Japan, and large European economies, and in many other countries geographically close to the United States and China.
The IMF said that level of trade uncertainty, however, varies significantly across regions and income groups. The recent rise in the uncertainty index has been felt the most in the Western Hemisphere followed by Asia-Pacific and Europe.
In contrast, trade uncertainty remains moderately low in the Middle East, Central Asia, and Africa. Advanced economies show the highest trade uncertainty followed by emerging markets.
While rising, trade uncertainty remains on average at low levels in low-income economies, said the IMF.(ANI)