Global economy faltering from too slow growth for too long
Global growth continues, but at a sluggish pace that leaves the world economy more exposed to risks, says the IMF’s latest World Economic Outlook (WEO).
The WEO forecasts global growth at 3.2% in 2016 and 3.5% in 2017, a downward revision of 0.2% and 0.1%, respectively, compared with the January 2016 Update.
In a recent speech, IMF Managing Director Christine Lagarde warned that the recovery remains too slow, too fragile, with the risk that persistent low growth can have damaging effects on the social and political fabric of many countries.
“Lower growth means
for error,” said Maurice Obstfeld, IMF Economic Counsellor and Director of Research. “Persistent slow growth has scarring effects that themselves reduce potential output and with it, demand and investment,” he added.
The current diminished outlook calls for an immediate, proactive response, Obstfeld noted. To support global growth, there is a need for a more potent policy mix — a threepronged policy approach based on structural, fiscal, and monetary policies.
“If national policymakers were to clearly recognize the risks they jointly face and act together to prepare for them, the positive effects on global confidence could be substantial,” Obstfeld added.
Growth in advanced economies is projected to remain modest at 2%, according to the WEO. The recovery is hampered by weak demand, partly held down by unresolved crisis legacies, as well as low productivity growth.
In the United States, expected growth this year is flat at 2.4%, with a modest uptick in 2017. Domestic demand will be supported by improving government finances and a stronger housing market that help offset the drag on net exports coming from a strong dollar and weaker manufacturing.
In the euro area, low investment, high unemployment, and weak balance sheets weigh on growth, which will remain modest at 1.5% this year and 1.6% next year.
In Japan, both growth and inflation are weaker than expected, reflecting in particular a sharp fall in private consumption. Growth is projected to remain at 0.5% in 2016 before turning slightly negative to -0.1% in 2017, as the scheduled increase in the consumption tax rate goes into effect. While emerging markets and developing economies will still account for the lion’s share of world growth in 2016, prospects across countries remain uneven and generally weaker than over the past two decades.