IMF: Global growth remains ‘subdued’
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.” Maurice Obstfeld, IMF chief economist