IMF: Global growth re­mains ‘sub­dued’

China Daily (Canada) - - ACROSS AMERICAS - By CHEN WEIHUA in Wash­ing­ton chen­wei­hua@chi­nadai­

Global eco­nomic growth is sub­dued, and eco­nomic stag­na­tion could fuel stronger pro­tec­tion­ism, ac­cord­ing to a re­port re­leased on Tues­day by the In­ter­na­tional Mone­tary Fund (IMF).

In its Oc­to­ber 2016 World Eco­nomic Out­look (WEO), the IMF fore­cast global growth at 3.1 per­cent this year and 3.4 per­cent in 2017, the same as the IMF pred­i­cated in July shortly af­ter the Brexit.

The pickup in 2017 will be driven mainly by emerg­ing mar­ket strength, the re­port said.

The WEO re­port has marked down its growth prospects for ad­vanced economies while mark­ing up those for the rest of the world. But prospects for 2017 for both coun­try group­ings re­main un­changed.

“Taken as a whole, the world econ­omy has moved side­ways,” IMF chief economist Mau­rice Ob­st­feld told a press brief­ing on Tues­day morn­ing in Wash­ing­ton.

The IMF fore­cast China’s econ­omy, the world’s sec­ond largest, would grow 6.6 per­cent this year and 6.2 per­cent in 2017, down from growth of 6.9 per­cent last year.

It said that pol­i­cy­mak­ers in China will con­tinue to shift the econ­omy away from its re­liance on in­vest­ment and in­dus­try to­ward con­sump­tion and ser­vices, a policy that is ex­pected to slow growth in the short term while build­ing the foun­da­tions for a more sus­tain­able longterm ex­pan­sion.

But it said China’s govern­ment should take steps to rein in credit that is “in­creas­ing at a dan­ger­ous pace” and cut off sup­port to un­vi­able state- owned en­ter­prises, “ac­cept­ing the as­so­ci­ated slower GDP growth”, echo­ing a re­cent warn­ing by the Bank for In­ter­na­tional Set­tle­ments.

The IMF also fore­cast India’s GDP to ex­pand 7.6 per­cent this year and next, the fastest pace among the world’s ma­jor economies.

It fore­cast the growth of emerg­ing mar­kets and de­vel­op­ing economies to speed up this year for the first time in six years, to 4.2 per­cent, slightly higher than the July fore­cast of 4.1 per­cent. Next year, emerg­ing economies are ex­pected to grow 4.6 per­cent.

The WEO re­port said that ad­vanced economies will ex­pand just 1.6 per­cent in 2016, less than last year’s 2.1 per­cent pace and down from the July fore­cast of 1.8 per­cent.

The IMF has marked down its fore­cast for the US this year to 1.6 per­cent, from 2.2 per­cent in July, fol­low­ing a dis­ap­point­ing first half caused by weak busi­ness in­vest­ment and a di­min­ish­ing pace of stock­piles of goods.

But it said US growth is likely to pick up to 2.2 per­cent next year, as the drag from lower en­ergy prices and dol­lar strength fades. Fur­ther in­creases in the Fed­eral Re­serve’s policy rate “should be grad­ual and tied to clear signs that wages and prices are firm­ing durably,” the re­port said.

The re­port said un­cer­tainty fol­low­ing the Brexit will take a toll on the con­fi­dence of in­vestors. It fore­cast the UK growth to slow to 1.8 per­cent this year and to 1.1 per­cent in 2017, down from 2.2 per­cent last year. Mean­while, the euro area will ex­pand 1.7 per­cent this year and 1.5 per­cent next year, com­pared with 2 per­cent growth in 2015.

Growth in Ja­pan, the world’s third- largest econ­omy, is ex­pected to re­main sub­dued at 0.5 per­cent this year and 0.6 per­cent in 2017, ac­cord­ing to the IMF.

“A re­turn to the strong, sus­tain­able, balanced and in­clu­sive growth that Group of 20 lead­ers called for at Hangzhou in Septem­ber still eludes us,” Ob­st­feld said.

The direc­tor of IMF’s re­search depart­ment ex­plained that dis­sat­is­fac­tion with the re­cent growth rates is due to the be­lief that the trend shift in global out­put away from ma­ture and rel­a­tively slow-grow­ing economies, to­ward emerg­ing and de­vel­op­ing economies, should raise global growth over time.

“But this has not hap­pened,” he said.

He said the fi­nan­cial cri­sis has left a cock­tail of in­ter­act­ing lega­cies — high debt over­hangs, non-per­form­ing loans on banks’ books, de­fla­tion­ary pres­sures and eroded hu­man cap­i­tal — that con­tinue to de­press po­ten­tial out­put lev­els.

“Be­cause in­vestors and con­sumers be­come more cau­tious when they fear in­come growth may lag for longer, re­al­ized growth can fall as well,” he said.

Taken as a whole, the world econ­omy has moved side­ways.”

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