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October 5, 2016

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Home » Business » Economy

IMF downgrades world’s prospects

Source: AFP | October 5, 2016, Wednesday | Print Edition

THE International Monetary Fund downgraded its forecasts for growth in global trade volume and for advanced economies’ output, saying that prospects for richer countries had darkened this year in its latest global economic forecasts.

“It is vitally important to defend the prospects for increasing trade integration,” IMF chief economist Maurice Obstfeld said yesterday. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”

Global output is expected to grow this year at a rate of 3.1 percent before rising to 3.4 percent next year, estimates that are unchanged from July, the IMF said in its World Economic Outlook report.

The IMF notably cut its growth forecast for the United States, the world’s largest economy, but upgraded those for Japan and the eurozone.

“Taken as a whole, the world economy has moved sideways,” Obstfeld said, adding that “sub-par growth” was stirring negative economic and political forces around the world.

The IMF downgraded its outlook for advanced economies this year by 0.2 percentage points to 1.6 percent but raised it slightly for emerging and developing economies to 4.2 percent. Next year’s forecasts were unchanged.

The global crisis lender predicted the US economy would expand by just 1.6 percent, compared to its July estimate of 2.2 percent and one percentage point below 2015’s pace.

The slower-than-expected activity comes out of the ongoing oil industry slump, depressed business investment and a persistent surplus in business inventories, it said.

But also underpinning the turgid pace of activity, the IMF said, is uncertainty over the looming US presidential election, which pits Democrat Hillary Clinton against Republican Donald Trump.

The IMF also cut its 2017 growth forecast for Britain, blaming Brexit, and warning that the damage could be greater if rocky negotiations lead to trade barriers.

Uncertainty after Brexit vote

It now expects Britain’s GDP to expand by 1.1 percent in 2017, a downgrade of 0.2 percentage points from the prediction given in July.

“In the United Kingdom slower growth is expected since the referendum as uncertainty in the aftermath of the Brexit vote weighs on firms’ investment and hiring decisions and consumers’ purchases of durable goods and housing,” the IMF said.

The world trade outlook also soured, with growth pegged at 2.3 percent this year, 0.4 percentage points lower than forecast in July, before rising to 3.8 percent in 2017.

“Over the medium term, while we expect that advanced economies will continue along a disappointingly low growth path, emerging market and developing economies should accelerate,” said Obstfeld.

Japan was a surprise bright spot, with forecasts for this year and next revised upward over July’s forecast. The Japanese economy is now due to grow by 0.5 and 0.6 percent this year and next.

Likewise, the eurozone had its forecasts moved upward by 0.1 percentage points, with output expected to increase by 1.7 percent this year and 1.5 percent in 2017.

But Obstfeld warned of a “gathering political fallout” of a low-growth era in wealthy countries where income distribution has skewed “sharply toward the highest earners.”

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