IMF cuts global growth outlook amid risks
Print Edition
THE International Monetary Fund warned of substantial risks in the major emerging market economies yesterday as it lowered its outlook for global economic growth this year.
Slower Chinese growth, a stronger US dollar, collapsed oil prices and political turmoil could all wreak further havoc in struggling economies like Russia and Brazil and across the Middle East, putting the brakes on the global recovery, the IMF said.
And it said the Mideast refugee crisis poses formidable challenges to Europe as it tries to restart growth and urged more efforts to assimilate the new arrivals.
The IMF said it expects the world economy to grow by 3.4 percent this year, an improvement from 3.1 percent in 2015 but still 0.2 percentage points below what it predicted in October.
While the advanced countries will anchor world economic expansion in 2016, rather than picking up pace, the United States will grow only 2.6 percent, 0.2 percentage points less than previously expected due to the strong dollar’s hit on US exporters and the slump in investment in the energy industry.
Europe got a slight upgrade, to 1.7 percent this year, on the back of Spain’s stronger-than-expected rebound; and Japanese economic growth should pick up as well.
The IMF stuck to its forecast of 6.3 percent growth for the Chinese economy, slowing from 6.9 percent last year.
Separately, China said yesterday that its economy grew 6.9 percent in 2015, slumping to its lowest annual expansion rate in a quarter of a century.
The IMF expressed guarded confidence in China’s ability to manage its metamorphosis into a domestic consumption-driven economy and to modernize its financial sector.
Even so, it expects China’s deceleration will continue into 2017.
Latin America as a whole will be dragged into recession by the deep troubles in regional giant Brazil, whose economy the IMF expects to contract by 3.5 percent this year, after 3.8 percent in 2015.
Overall, the picture for this year from the IMF, the world’s key crisis lender, is of slowing global trade and investment, with the sharp declines in commodity prices led by oil continuing to hurt exporters while not yet providing expected stimulus to importers and consumers.
Indeed, rather than a net positive for growth, the steepness of the plunge in oil prices has become a drag as major exporters retrench in the face of large fiscal deficits and the entire crude oil industry slashes investment.
“Downside risks to our central scenario have intensified,” IMF chief economist Maurice Obstfeld said. “We may be in for a bumpy ride this year, especially in the emerging and developing world.”
The IMF’s updated forecast for the world economy dwelled mostly on the interlinked problems that could exacerbate local crises and unleash shockwaves elsewhere.
The transition of China, the world’s second-largest economy after the US, topped the list.
The sharper-than-expected slowdown in Chinese imports and exports is putting more downward pressure on the depressed global commodities market.
“It’s created large spillover effects,” said Obstfeld.
Less directly, that is taking a toll on general economic confidence around the world and fueling more volatility in global markets, which discourages longer-term investment.
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