The International Monetary Fund has warned that free trade is increasingly seen as benefiting only the well-off and that help is needed for those whose job prospects have been damaged by globalisation in order to put fresh momentum behind removing barriers to international commerce.

In a chapter from the half-yearly World Economic Outlook study released ahead of its annual meeting next week, the IMF said the weakness of the global economy, rather than a wave of protectionism, had been largely responsible for the sharp slowdown in trade growth over the past four years.

But it said the uptick in protectionist measures since the financial crisis had “not been innocuous” and stressed that anti-trade sentiment could harden.

The IMF noted there had been studies showing “significant and long-lasting adjustment costs” for those whose job opportunities had been impaired by the structural changes associated with the trend, even if the lower prices generated by globalisation helped those on low incomes.

“An increasingly popular narrative that sees the benefits of globalisation and trade accrue only to a fortunate few is also gaining traction,” the IMF study said.

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“Policymakers need to address the concerns of trade-affected workers, including through effective support for retraining, skill building and occupational and geographic mobility, to mitigate the downsides of further trade integration for the trade agenda to revive.”

The IMF said global trade had grown by just over 3% per year since 2012, less than half the average rate of expansion during the previous three decades.

“The slowdown in trade growth is remarkable, especially when set against the historical relationship between growth in trade and global economic activity. Between 1985 and 2007, real world trade grew on average twice as fast as global GDP, whereas over the past four years it has barely kept pace. Such prolonged sluggish growth in trade volumes relative to economic activity has few historical precedents during the past five decades.”

Calls for greater protectionism have featured in the US presidential race, but the IMF said three-quarters of the decline in trade growth since 2012 relative to 2003–07, the four years prior to the global crisis, was the result of weaker economic activity and in particular subdued investment growth.

However, it said other factors – including the lack of new trade deals – had also shaved 1.75 percentage points off trade growth. “The pace of new trade policy initiatives at the global level has slowed notably. At the same time, the uptick in protectionism since the global financial crisis is not innocuous.

“While the quantitative contribution of trade policies to the slowdown in trade growth has been limited so far, protectionist measures could significantly weigh on global trade if they become more widespread.”



In a separate chapter, the IMF said there were signs that the anti-deflation policies being pursued by central banks around the world were becoming less effective, and urged a broader mix of actions to increase demand.

“Given the broad-based nature of the disinflation and the corresponding fact that many countries are easing monetary policy at the same time, dampening the downward pressure that monetary policy easing exerts on the exchange rate, monetary policy stimulus on its own may not be sufficient to keep medium-term inflation expectations anchored at central bank targets.

“A comprehensive package consisting of a more growth-friendly composition of fiscal policy, an expansionary fiscal stance where fiscal space is available, demand-supportive structural reforms and measures aimed at addressing weaknesses in bank and corporate balance sheets should play a complementary role in mitigating the risk of protracted weak demand and low inflation.”