IMF foresees global economy accelerating
China’s return to growth heads promising report
WASHINGTON — A resilient China, rising commodity prices and sturdy financial markets are offering a sunnier outlook for the global economy and helping dispel the gloom that has lingered since the Great Recession ended.
That’s the picture sketched Tuesday by the International Monetary Fund, which predicts that the world economy will grow 3.5 per cent this year, up from 3.1 per cent in 2016. The IMF’s latest outlook for 2017 is a slight upgrade from the 3.4 per cent global growth it had forecast in January.
The Washington, D.C.-based organization estimates Canada’s gross domestic product will grow by 1.9 per cent this year, unchanged from its previous forecasts in October and January.
The IMF expects the U.S. economy to grow 2.3 per cent, up from 1.6 per cent in 2016; the 19-country eurozone to expand 1.7 per cent, the same as last year; Japan to grow 1.2 per cent, up from one per cent; and China to expand 6.6 per cent, down from 6.7 per cent in 2016.
“Momentum in the global economy has been building since the middle of last year,” the IMF’s chief economist, Maurice Obstfeld, told reporters. But, he added, “We cannot be sure we are out of the woods.”
The organization’s outlook for Canada is lower than the Bank of Canada’s. Last week, the bank projected last week that the economy will expand by 2.6 per cent this year, up from its prior estimate of 2.1 per cent growth.
An IMF official explained that the economic momentum in Canada hasn’t been reflected in its latest analysis due to timing.
“There has been a very strong data release on monthly GDP in early 2017 for Canada, which bodes very well for growth in the early part of the year,” said Gian Maria Milesi-Ferretti, the IMF’s deputy director of research.
“(But) that data release has come after our forecast was closed. With a stronger base, there is clearly upside risk to our forecast for Canada.”
The monetary fund’s latest outlook for the global economy comes in advance of spring meetings in Washington this week of the IMF, the World Bank and the Group of 20 major economies. The meetings come against the backdrop of a gradually strengthening international picture, especially in many emerging economies, despite resistance to free trade and political unrest in some countries.
For years after the 2008 financial crisis and the Great Recession ended, the global economy remained trapped in what the IMF’s managing director, Christine Lagarde, termed “the New Mediocre.”
The once-super-charged Chinese economy began a long slowdown, driving down global commodity prices and hurting countries from Australia to Zambia that fed raw materials to the world’s second-biggest economy. Plummeting oil prices forced energy companies to slash production.
Now, Lagarde and others say, the outlook is brightening. China’s economy has steadied, thanks to government spending and an easy-money credit boom. Beijing said Monday that its economy grew at a 6.9 per cent annual pace from January to March, the fastest in more than a year. Thanks in part to relief over China’s prospects, global commodity prices have stabilized after plummeting from mid-2014 to early 2016.
Oil prices have surged nearly 40 per cent in the past year, partly because oil-producing countries agreed to curb production.
Financial markets have marched upward. Investors expect the Chinese government to continue supporting economic growth. They also expect U.S. President Donald Trump to deliver tax cuts and infrastructure spending that could help boost U.S. economic growth.
The IMF does warn of downside risks to its optimistic forecast. They include “the threat of deepening geopolitical tensions,” the possibility that rising U.S. interest rates will squeeze economic growth and rattle financial markets and the threat that protectionist measures will damage global trade.
Trump campaigned on an “America First” trade policy, vowing to brand China a currency manipulator and to renegotiate — or tear up — the North American Free Trade Agreement with Canada and Mexico. But Bob Baur, chief global economist at Principal Global Investors, noted that Trump has retreated from those threats: his administration declined last week to accuse China of undervaluing its currency. And so far, it has signalled unexpectedly modest goals for rewriting NAFTA.
So the risk that protectionist U.S. policies and trade disputes could disrupt global commerce has “diminished,” Baur said.
Wealthy economies also face deeper problems, in particular chronically weak growth in productivity — the output produced per hour of work — and aging workforces.