Downgrading delicately
It is hard not to spare a thought for economists at the International Monetary Fund, required to produce a global economic outlook in the eye of the deglobalisation being pursued by the Trump administration.
Not only are the trade facts changing almost by the day, but the plan to slash the State Department only underlines that US support for the IMF itself could quickly wither if its analysis upsets the White House.
But what is most striking about this week’s IMF World Economic Outlook is not so much the downgrades in growth estimates due to what are delicately described as “headwinds from a range of challenges”. It is, instead, the reminder of how well the US economy has recovered from the pandemic era when Trump was last in control.
In 2020, the US slumped 4.1% below its trend growth trajectory. Back then, Trump was questioning the value of Covid vaccinations. But the United States is now growing at 3.6% above its pre-pandemic trend.
The United States has been a positive outlier in the economic recovery from the pandemic, despite Trump’s relentless maligning of the country’s fortunes since he left office.
China, by contrast, fell 3.5% below trend during the time it was locking people in their houses. But China is now even worse off, at 5.3% below trend. And the Euro area fell a massive 7.2% below trend in 2020 and is now still 2.5% below.
As the IMF Outlook puts it, the United States has been a positive outlier in the economic recovery from the pandemic, despite Trump’s relentless maligning of the country’s fortunes since he left office. And the IMF underlines the point by noting how the US terms of trade have improved due to its reduced energy imports. Its labour productivity has also increased in contrast to peers.
This might be sugar coating to pave the way for a report which has slashed the global economic growth outlook from 3.3% in January to 2.8% now, due to how a “swift escalation of trade tensions has generated extremely high levels of policy ambiguity”.
But more importantly, it seems to only underline that the policy ambiguity coming out of the White House reflects much deeper cultural changes and resentment about relative imperial decline than any economic analysis from the IMF can explain.
Too big to fall
The IMF couldn’t be blamed for finding nuanced things to say about the United States in this week’s Outlook and associated publications, given that Project 2025, as an ideological roadmap for a future Trump administration, backed a US withdrawal from both the Fund and the World Bank.
The Heritage Foundation managed document argued that the IMF supported economic theories and policies that were inimical to the free market and traditional American principles of limited government.
So, after the US withdrawal from the Paris Agreement on climate change and a pause on financial contributions to the World Trade Organisation ahead of the tariff chaos, this week’s grudging acceptance of the IMF and World Bank by Treasury Secretary Scott Bessent might be a new benchmark for some nuance from the administration.
Bessent at least seemed happy to fully embrace the US role in creating the Bretton Woods system named for the New Hampshire resort where the IMF was conjured up after the Second World War. As he put it:
“The IMF and World Bank have enduring value. But mission creep has knocked these institutions off course. We must enact key reforms to ensure the Bretton Woods institutions are serving their stakeholders – not the other way around.”
Perhaps more importantly he argued:
“America First does not mean America alone. To the contrary, it is a call for deeper collaboration and mutual respect among trade partners.”
This sentiment probably won’t save the IMF and World Bank from some funding cuts by the United States on what Bessent calls “sprawling beyond their prescribed mandates”. But it has placed a welcome bottom line under how far the Trump administration is prepared to go in destroying the core institutions of globalisation.
It is also another sign of how the global financial market can still exercise constraint on Trump. Trashing the US-dominated IMF would have been an act of financial fratricide for the recently weakening US dollar, given the important role the IMF plays in shoring up the greenback as the global reserve currency.
Australia finds home
A little like the changing policy ground under the IMF World Economic Outlook, this year’s survey of Southeast Asian opinion maker sentiment also seems to have been mistimed to analyse the Trump turmoil.
The ISEAS - Yusof Ishak Institute State of Southeast Asia survey was conducted around the time Donald Trump was being sworn in. So its respondents perhaps didn’t fully anticipate his policy intentions when they elevated the US to be the choice in a showdown with China, in contrast to last year when China came out on top.
Putting the bountiful and rich data on broader regional attitudes aside, this column has long turned to the specific results on Australia as the best available proxy for judging how Australian government ASEAN region engagement policy is faring. As noted here last year, the data on how Australia is regarded by these opinion makers is at best mixed.
It is pretty much all we have to objectively judge an increasingly high-level foreign policy priority.
This year things have looked up, which will come as good news to a federal government facing an election where, as we have noted, ASEAN engagement has become its go-to answer to global instability.
Last year’s ASEAN-Australia Special Summit in Melbourne and the associated development aid-style policies, including the Southeast Asia Investment Finance Facility, seem to have contributed to some improved sentiment towards Australia. Indeed, on the economic policy ally front, views have improved at a time when Australia has slipped slightly as a holiday destination, which has tended to be an historic strength.
Australia’s ranking as the first choice in this survey is always fairly low. It is up against the likes of the United States, China, and the European Union. Nevertheless, it is pretty much all we have to objectively judge an increasingly high-level foreign policy priority.
This year 2.6% of respondents rank Australia as the region’s free trade leader compared with 1.7% last year. And 0.9% rank Australia as the region’s economic power compared with 0.4% last year. The ASEAN opinion makers see ASEAN itself as the free trade leader, at 23.8% down from 28.7% last year. And they see China as the economic power at 56.4% down from 59.5% last year.
Australia has also received a noticeable boost as the region’s principal strategic power at 1.2% compared with 0.5% last year. China is the winner there at 37.9%, which is down from 43.9%. Australia is also up as the rules-based order leader, at 2.6% compared with 1.6% last year, with the US still leading this category at 26.5%.
These are welcome small improvements on an important diplomatic and economic relationship at a time when there are few other promising options.
