WASHINGTON, April 3 (Xinhua) -- For three decades, improved affordability of capital goods like machinery and equipment helped countries to raise real investment and improve living standards. However, trade tensions and lower productivity could weigh on that, said an International Monetary Fund (IMF) report on Wednesday.
In the World Economic Outlook Analytical Chapters, the global monetary cooperation facilitator highlighted the contribution of lower relative price of investment goods.
"Decline in the relative price of tradable investment goods has provided sizable impetus to the rise in real investment rates in machinery and equipment over the past three decades," IMF said in the report.
The decline was driven by faster productivity growth in capital goods production and deepening trade integration. However, both of these factors are facing challenges and threats, according to IMF.
IMF warned that rising trade tensions, a slowing pace of trade integration, and sluggish productivity growth posed a threat to the expansion of the world economy.
"Hikes in tariffs and nontariff barriers could disrupt cross-border supply chains and, by making production less efficient, slow or even reverse the downward trend in capital goods prices," the report said.
Even as many emerging markets and developing economies were not directly involved in the current trade tensions, they may face collateral damage if the disputes escalate, according to IMF.
"As net importers of capital goods, they may face higher prices of machinery and equipment and, more broadly, diminished opportunities to benefit from the cross-border spread of knowledge and technology brought on by globalization," IMF warned.
Besides, the sluggish productivity growth in advanced economies may lead to a further decline of capital goods prices.
"The pace of decline in the relative price of machinery and equipment has already slowed considerably in advanced economies in the past decade," the report said.
IMF also highlighted the importance of continued technological advances and innovation in capital goods production in all economies, which could lower the relative price of investment goods, and therefore "generate dividends beyond their effect on aggregate productivity growth."
