You are here

World economy in strongest upswing in a decade, says IMF

Buoyant trade sees global recovery now on firmer footing than in April, with growth revised up for Japan, euro area, China, Asia emerging markets

BT_20170725_ARWEO25_2999430.jpg
Despite its overall optimistic tone, the WEO highlights threats, saying that "risks remain skewed to the downside over the medium term". It notes the danger of a financial market correction, given "rich valuations and very low volatility in an environment of high policy uncertainty".

Tokyo

THE global economy is enjoying the "broadest synchronised upswing" it has experienced in the past decade, thanks largely to buoyant growth in world trade which is expected to continue over the next two years, the International Monetary Fund said Monday.

In the latest update of its World Economic Outlook (WEO) report, the IMF said that global recovery is on a firmer footing now than at the time of the last report in April, with growth revised up for Japan, the euro area, China, and for Asian emerging and developing economies generally.

"There is now no question mark over the world economy's gain in momentum," said IMF economic counsellor Maurice Obstfeld, echoing positive sentiments voiced last week about the Asian and global economic outlook - including that for key European economies - by the Asian Development Bank.

sentifi.com

Market voices on:

However, the IMF left unchanged its April projection of 3.5 per cent growth in the global economy this year and 3.6 per cent in 2018 after adjusting for downgrades in the outlook for the world's biggest economy, the United States, and Britain.

Meanwhile, global growth in 2016 is now estimated to have been 3.2 per cent, slightly stronger than the April 2017 forecast by the IMF, primarily reflecting much higher growth in Iran and stronger activity in India.

Despite its overall optimistic tone, the WEO highlighted threats, saying that "risks remain skewed to the downside over the medium term". It noted the danger of a financial market correction, given "rich valuations and very low volatility in an environment of high policy uncertainty".

Also, monetary policy normalisation in some advanced economies, notably the US, "could trigger a faster-than-anticipated tightening in global financial conditions". At the same time, "a turn towards inward-looking policies and geopolitical risks remain salient".

"Many emerging and developing economies have been receiving capital inflows at favourable borrowing rates, possibly leading to risks of balance of payment reversals later. Strains could emerge if advanced economy central banks show an increasing preference for monetary tightening."

From a global economic growth perspective, "the most important downgrade" to economic forecasts in the latest WEO is that of the United States, Mr Obstfeld said in a commentary.

"Over the next two years, US growth should remain above its longer-run potential growth rate but we have reduced our forecasts for both 2017 and 2018 to 2.1 per cent because near-term US fiscal policy looks less likely to be expansionary than we believed in April.

"Our projection for the United Kingdom this year is also lowered, based on the economy's tepid performance so far. The ultimate impact of Brexit on the United Kingdom remains unclear."

By contrast, the WEO said, "growth projections for 2017 have been revised up for many euro area countries, including France, Germany, Italy, and Spain, where growth for the first quarter of 2017 was generally above expectations".

In the case of China, the world's second largest economy, IMF "growth projections have also been revised up, reflecting a strong first quarter of 2017 and expectations of continued fiscal support", the report said.

"China's growth is expected to remain at 6.7 per cent in 2017, the same level as in 2016, and to decline only modestly in 2018 to 6.4 per cent. The forecast for 2017 was revised up by 0.1 percentage point, reflecting the stronger than expected outturn in the first quarter of the year."

The WEO noted, however, that "in China, failure to continue the recent focus on addressing financial sector risks and curb excessive credit growth could result in an abrupt growth slowdown, with adverse spillovers to other countries through trade, commodity price, and confidence channels".

Growth in India is forecast to pick up further in 2017 and 2018, the IMF said. While activity slowed following the currency exchange initiative in India, growth for 2016 - at 7.1 per cent - was higher than anticipated due to strong government spending.

In the principal Asean-5 economies (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) "growth is projected to remain robust at around 5 per cent in 2017".

Overall, the growth forecast for 2018 in the latest WEO is 1.9 per cent for advanced economies - 0.1 percentage point below the April forecast - and is unchanged at 4.8 per cent for emerging and developing economies.

With countries "facing divergent cyclical conditions, differing stances of monetary and fiscal policy remain appropriate", the IMF said.

"In advanced economies where demand is still lacking and inflation too low, monetary and (where feasible) fiscal support should continue; elsewhere, monetary policy should normalise gradually, in line with economic developments".

Powered by GET.comGetCom