IMF's grim warning on world economy facing mounting risks
The IMF on Tuesday warned in a grim outlook that the “increasingly disappointing” world economy is facing the threat of a “synchronised slowdown” and mounting risks including more financial market turmoil, and a political backlash against globalisation.
The IMF’s latest World Economic Outlook (WEO) forecasts global growth at 3.2% in 2016 and 3.5% in 2017, a downward revision of 0.2% and 0.1%, respectively, compared with the January 2016 Update.
“Lower growth means less room for error,” said Maurice Obstfeld, IMF chief economist. “Persistent slow growth has scarring effects that themselves reduce potential output and with it, demand and investment,” he added.
Moderate recovery in advanced economies
Growth in advanced economies is projected to remain modest at about 2%, according to the WEO. The recovery is hampered by weak demand, partly held down by unresolved crisis legacies, as well as unfavorable demographics and low productivity growth.
In the United States, expected growth this year is flat at 2.4%, with a modest uptick in 2017. Domestic demand will be supported by improving government finances and a stronger housing market that help offset the drag on net exports coming from a strong dollar and weaker manufacturing.
In the euro area, low investment, high unemployment, and weak balance sheets weigh on growth, which will remain modest at 1.5% this year and 1.6% next year.
In Japan, both growth and inflation are weaker than expected, reflecting in particular a sharp fall in private consumption. Growth is projected to remain at 0.5% in 2016 before turning slightly negative to -0.1% in 2017, as the scheduled increase in the consumption tax rate goes into effect.
Irish GDP is expected to expand by 5% in 2016.
Emerging and developing economies slowing further
While emerging markets and developing economies will still account for the lion’s share of world growth in 2016, prospects across countries remain uneven and generally weaker than over the past two decades.
The WEO projects their growth rate to increase only modestly — relative to 2015 — to 4.1% this year and 4.6% next year.
This forecast reflects a variety of factors:
Slowing growth in oil exporters, with oil price decline, and still weak outlook for non-oil commodity exporters, including in Latin America.
The modest slowdown in China, where growth continues to shift away from manufacturing and investment to services and consumption.
Deep recessions in Brazil and Russia, and weak growth in some Latin America and Middle East countries, particularly those hit hard by the oil price decline and intensifying conflicts and security risks.
Diminished growth prospects in many African and low-income nations due to the unfavorable global environment.
The IMF said that on the positive side, India remains a bright spot — with strong growth and rising real incomes. The ASEAN-5 economies — Indonesia, Malaysia, Philippines, Thailand, and Vietnam — are also performing well. And Mexico, Central America, and the Caribbean are beneficiaries of the US recovery and, in most cases, lower oil prices.