IMF calls for action to boost global growth
Leading countries warned over weak output
THE recovery in the global economy is ‘moderate and uneven’ and ‘decisive’ action is needed to boost growth and create jobs, according to the International Monetary Fund.
The near-term outlook is brighter than it has been for many years in the big industrialised countries – including Britain, the United States and even in Europe – as low oil prices and low interest rates stimulate demand.
But growth in much of the West remains weak and many emerging markets and developing economies are slowing.
‘ Medium- term prospects have become less optimistic for advanced economies, and especially for emerging markets, in which activity has been slowing since 2010,’ the IMF said in its World Economic Outlook.
The slowdown in emerging markets is worrying for the rest of the world, the Fund said as it published the report at its headquarters in Washington DC.
‘Global growth in 2014 was a modest 3.4pc, reflecting a pick-up in growth in advanced economies relative to the previous year and a slowdown in emerging market and developing economies,’ said the report. ‘Despite the slowdown, emerging market and developing economies still accounted for three-fourths of global growth in 2014.’
The IMF expects global growth to pick-up from 3.4pc last year to 3.5pc this year and 3.8pc in 2016 but the halving of the oil price since last summer and wild swings on the foreign exchange markets have created ‘winners and losers’.
Growth among the advanced economies is set to increase from 1.8pc last year to 2.4pc this year and next with the US expanding by more than 3pc in both years and Britain by 2.7pc then 2.3pc.
The four big eurozone economies – Germany, France, Italy and Spain – are all expected to grow following the end of recession in Italy. The recovery in Europe looks set to be driven by low oil prices, the weak euro, and support from the European Central Bank which has embarked on a money printing programme worth more than £700bn.
But, according to the IMF, the outlook is far from rosy, particularly given the slowdown elsewhere in the world.
The so-called BRIC economies of Brazil, Russia, India and China are cause for concern. Brazil is on course to shrink by 1pc this year following growth of just 0.1pc in 2014 while Russia is in the grip of a deep recession, with the IMF expecting output to tumble 3.8pc in 2015 and 1.1pc in 2016 as the low oil price and economic sanctions bite.
The outlook in India is brighter, with growth expected to accelerate from 7.2pc last year to 7.5pc this year and next but China is slowing. China’s powerhouse economy grew by 7.4pc last year but is expected to grow by 6.8pc this year and 6.3pc next year.
‘Global growth prospects are uneven across major economies,’ said Olivier Blanchard, the Fund’s economic counsellor and director of research.
‘Legacies of both the financial and the euro area crises – weak banks and high levels of public, corporate, and household debt – are still weighing on spending and growth in some countries. Low growth in turn makes deleveraging a slow process.’
Blanchard warned that a combination of population ageing, lower investment and sluggish advances in productivity will lead to ‘significantly lower potential growth in advanced and emerging market economies’ in the coming years.
‘More subdued growth prospects l ead, i n turn, to l ower spending and lower growth today,’ he said. ‘Decisive policies to boost actual and potential output are needed urgently.’
The IMF said that while the threats of recession and a prolonged and damaging period of deflation have eased in many regions – including the eurozone – they are still a risk.
‘Stagnation and low inflation in advanced economies, notwithstanding the recent upgrade to the near-term growth forecasts for some of these economies, could hamper the recovery,’ the report warned.
It said another sharp rise in the US dollar could trigger financial tensions elsewhere, particularly in emerging markets.
Tensions in Ukraine, the Middle East and West Africa are also a threat, as is the crisis in Greece.
The IMF called for interest rates to remain low in advanced economies to support economic growth and lift inflation expectations.
The Fund also called f or increased investment in infrastructure – something that could play a part in the General Election as the Tories and Labour clash over their spending plans.
It said other countries – such as Japan and those in the eurozone – require structural reforms to get more people i nto work and increase productivity.
‘The proper menu differs by country,’ said Blanchard. ‘Given the short-term political costs associated with many of these reforms, the challenge will be to choose carefully among them.
‘The worry is that growth in the future is not going to be as strong as in the past.’