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EghtesadOnline: Reports issued this week by the World Trade Organization and the International Monetary Fund point to worsening stagnation in the global economy and a consequent rise of nationalist tensions.

The WTO forecast that global trade would grow by only 1.7% this year, compared to the already low rate of 2.8% it had predicted in April, Global Research reported.

In the analytic chapters of its latest “World Economic Outlook” report, the IMF warned that “broad-based” low inflation and outright deflation could lead to a full-blown deflationary cycle in which lower prices, combined with falling investment, lead to a further economic contraction.

“Disinflation has been taking place across a broad range of countries and regions,” the report stated. “By 2015 inflation rates were below medium-term expectations in more than 85% of a broad sample of 120 economies—20% of which were actually experiencing outright deflation.”

The WTO report focused on the rapid downturn in global trade, particularly over the past three years. Since the 1980s, world trade has grown at a rate 1.5 to 2 times faster than the growth in global gross domestic product. This year, the trade growth rate will only be 80% of GDP, the first time trade growth has dipped below GDP growth since 2001 and only the second time since 1982.

“The dramatic slowing of trade growth is serious and should serve as a wake-up call,” said WTO Director-General Roberto Azevedo. Having earlier pointed to the rise of protectionist measures, especially by major countries, the WTO again raised its concerns over this issue. It was necessary to ensure that the slowdown did not “translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development.”

  Investment Vital

His remarks were echoed in a speech delivered by IMF Managing Director Christine Lagarde in Chicago Wednesday. She said the world economy faced the danger of constrictions on trade and increased protectionism.

“Restricting trade is a clear case of economic malpractice,” she said. Limiting economic openness was “sure to worsen the growth outlook for the world,” and it was necessary to “reverse the trend toward protectionism and restore a climate that supports a rebound in trade.”

The decline in investment is particularly significant because investment is the driving force of economic expansion in the capitalist economy. Investment is carried out in the expectation of future profits, leading in turn to higher employment and greater demand for raw materials and industrial goods, thereby promoting broader economic expansion. But as profit expectations decline, investment falls, bringing about economic contraction and a turn to financial speculation and manipulation to boost profits, reports Financial Tribune.

The IMF warned that the “quantitative easing” measures of central banks, carried out with the rationale that low interest rates will lift inflation and stimulate investment in the real economy, but in reality only boosting speculation, were reaching their limit.

The IMF has been calling for some time for increased government spending on infrastructure programs in order to provide an economic boost.

“No doubt, the current situation is different from the 2008 crisis, which required a prompt, massive and coordinated fiscal response,” Lagarde said. “But as our ‘new mediocre’ is less acute, it is also more divisive and subtle than a full-blown crisis, and it could prove just as toxic as the recovery has so far proven elusive.”

She said if all countries worked to stimulate their own growth, this would bring “positive spillovers” that would “reinforce each other” and benefit the world economy as a whole.

The remarks by both Lagarde and Azevedo point to fears in policy-making circles that the world economy is increasingly riven by nationalist tensions which, despite their warnings, they are unable to reduce.

global trade global economy Stagnation