IMF scraps fore­cast for growth pick-up

The Myanmar Times - - International Business -

THE In­ter­na­tional Mon­e­tary Fund scrapped its fore­cast for a pickup in global growth this year, cit­ing Bri­tain’s vote to leave the Euro­pean Union, and warned the dam­age could worsen if con­fi­dence fal­ters among in­vestors and com­pa­nies.

The IMF sees global gross do­mes­tic prod­uct ris­ing 3.1 per­cent this year, down from April’s 3.2pc pro­jec­tion and equal to growth in 2015, ac­cord­ing to the fund’s quar­terly World Eco­nomic Outlook, re­leased on July 19 in Wash­ing­ton. The 2017 fore­cast was cut to 3.4pc from 3.5pc.

The IMF’s new fore­cast is based on the as­sump­tion that Bri­tish and EU of­fi­cials reach new trade agree­ments that avoid a “large in­crease in eco­nomic bar­ri­ers”.

How­ever, if talks break down, Bri­tain will slip into re­ces­sion as more fi­nan­cial in­sti­tu­tions re­lo­cate to the euro area and con­sump­tion and in­vest­ment con­tract more than ex­pected, the Fund said. In a “se­vere” sce­nario, global growth is seen slid­ing to 2.8pc this year and next.

“The real ef­fects of Brexit will play out grad­u­ally over time, adding el­e­ments of eco­nomic and po­lit­i­cal un­cer­tainty that could be re­solved only af­ter many months,” IMF chief econ­o­mist Mau­rice Ob­st­feld said in the text of re­marks for a press brief­ing on July 19.

The Wash­ing­ton-based fund said it had planned to mod­estly up­grade its global outlook be­fore the Brexit vote, as ac­tiv­ity in China came in stronger than ex­pected and re­ces­sions in Brazil and Rus­sia turned out less se­vere than an­tic­i­pated. In­stead, the IMF cut its 2016 global fore­cast for a fourth time.

As it stands, the IMF still ex­pects the Bri­tish econ­omy to grow 1.7pc this year, down from a pro­jec­tion of 1.9pc in April. The fund cut its fore­cast for Bri­tish growth in 2017 by 0.9 per­cent­age point to 1.3pc.

The IMF said the im­pact of Brexit will be con­cen­trated in ad­vanced Euro­pean economies, with a muted ef­fect on other coun­tries, in­clud­ing the United States and China.

Mar­ket re­ac­tion was ini­tially “se­vere but gen­er­ally or­derly” to the Brexit ref­er­en­dum June 23, the IMF said. The pound has dropped about 12pc against the dol­lar since the vote, while de­mand has strength­ened for safe haven as­sets such as US Trea­suries. But global stock mar­kets have largely re­cov­ered af­ter an ini­tial sell­off, with the S&P 500 surg­ing to a record high.

The IMF re­it­er­ated a June fore­cast for the US econ­omy to ex­pand 2.2pc this year and a pro­jec­tion from ear­lier this month for 1.6pc growth in the euro area. The Fund sees the Ja­panese econ­omy grow­ing 0.3pc this year, down 0.2 per­cent­age points from April’s pro­jec­tion, as the ap­pre­ci­a­tion of the yen wipes out the ben­e­fits of a de­lay in in­creas­ing the na­tion’s con­sump­tion tax.

The IMF raised its fore­cast for growth in China this year by 0.1 per­cent­age point to 6.6pc, not­ing that the na­tion’s near-term outlook has im­proved on re­cent stim­u­lus mea­sures.

Mr Ob­st­feld said a de­cline in global po­ten­tial output brought about by de­mo­graphic and tech­no­log­i­cal trends could set off a “vi­cious cir­cle” of weak­en­ing de­mand and slip­ping eco­nomic po­ten­tial. Slow growth will worsen the so­cial ten­sions caused by trends such as long-term wage stag­na­tion, he said.

With­out men­tion­ing the names of po­lit­i­cal can­di­dates or spec­i­fy­ing any elec­tion cam­paigns, Mr Ob­st­feld urged pol­i­cy­mak­ers and po­lit­i­cal lead­ers to lean against “pop­u­lar” rants against global mar­kets.

“These stresses are con­tribut­ing to de­mands for in­ward-look­ing so­lu­tions that seek to re­verse long-term global trends at the ex­pense of the open, dy­namic mar­kets that have de­liv­ered world­wide growth through­out most of the post-war era,” Mr Ob­st­feld said.

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