IMF presents sombre two-year projections for global economy
Tokyo
THE International Monetary Fund (IMF) on Tuesday revised downwards global economic growth projections in the latest update to its flagship World Economic Outlook (WEO) report. But, at the same time, it forecast a continuing modest pick-up in activity over the coming two years.
The report comes amid a sea of turbulence in financial markets, a sharp slowdown in China and other emerging economies and what the IMF says are growing geo-political risks in various regions of the world.
"In advanced economies, a modest and uneven recovery is expected to continue, with a gradual further narrowing of output gaps," the quarterly update suggested. "Growth in advanced economies is projected to rise by 0.2 percentage points in 2016 to 2.1 per cent, and hold steady in 2017."
Meanwhile, "the picture for emerging market and developing economies is diverse but in many cases challenging." Almost alone among emerging economies, India stands out for its economic strength while China continues to slow, it noted.
"This coming year is going to be a year of great challenges," said IMF chief economist Maurice Obstfeld in introducing the latest quarterly update to the WEO. "Policymakers should be thinking about short-term resilience and the ways they can bolster it, but also about longer-term growth prospects."
"Growth in emerging market and developing economies is projected to increase from 4 per cent in 2015 (the lowest since the 2008-09 financial crisis) to 4.3 and 4.7 per cent in 2016 and 2017, respectively."
Growth in China is expected to slow to 6.3 per cent in 2016 and 6 per cent in 2017, primarily reflecting weaker investment growth as the economy continues to rebalance, the IMF said.
"India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although with some countries facing strong headwinds from China's economic rebalancing and global manufacturing weakness."
Global growth is now estimated by the IMF to have been 3.1 per cent in 2015 - somewhat lower than suggested last October in the WEO. Global growth is projected to pick up to 3.4 per cent in 2016 and 3.6 per cent in 2017, says the latest report. These forecasts are revised downwards by 0.2 per cent mainly reflecting weaker-than-expected performances in emerging economies.
The IMF is also taking a more cautious view of economic growth prospects even in the United States where, it says, "growth momentum is now expected to hold steady rather than gather further steam".
Global economic activity remained subdued in 2015, said the WEO. "Growth in emerging market and developing economies - while still accounting for over 70 per cent of global growth - declined for a fifth consecutive year."
What the IMF termed "three key transitions" continue to influence the global outlook: a gradual slowdown and rebalancing of economic activity in China, lower prices for energy and other commodities, and a gradual tightening in monetary policy in the US. "If these key challenges are not successfully managed, global growth could be derailed," the report warned.
Overall growth in China is evolving broadly as envisaged, but with a faster-than-expected slowdown in imports and exports, in part reflecting weaker investment and manufacturing activity, it noted.
"These developments, together with market concerns about the future performance of the Chinese economy, are having spillovers to other economies through trade channels and weaker commodity prices, as well as through diminishing confidence and increasing volatility in financial markets."
Manufacturing activity and trade "remain weak globally, reflecting not only developments in China, but also subdued global demand and investment more broadly - notably, decline in investment in extractive industries."
