Global econ­omy fal­ter­ing from too slow growth for too long

Financial Mirror (Cyprus) - - FRONT PAGE -

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

less

room

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.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.