Are troubles ahead for the global economy? The IMF thinks so.
Apr 12, 2016 (LBO) – IMF projects a global growth of a modest 3.2 percent in 2016, broadly in line with last year, but 20 basis points below the January 2016 forecast.
The lender attributed its global economic outlook cut, for the second time this year, to the ongoing slowdown in China and depressed demand. The second edition of the IMF’s global economic outlook fears that the economy is losing steam and raises concerns that the recovery could inhibit. The slow recovery from the global financial crisis of 2007 and 2008 could intensify political and social turmoil, hindering economic growth further.
The World Economic Outlook 2016 observes that uncertainty has increased, and risks of weaker growth scenarios are becoming more tangible and the fragility increases the urgency of a broad-based policy response to raise growth and manage vulnerabilities.
“Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks,” said Maurice Obstfeld, IMF economic counselor and director of research, on Tuesday in discussing the organization’s latest World Economic Outlook. “Growth has been too slow for too long.”
While growth in emerging market and developing economies still accounts for the lion’s share of projected world growth in 2016, prospects across countries remain uneven and generally weaker than over the past two decades.
In particular, a number of large emerging markets—including Brazil and Russia—are still mired in deep recessions. Others, including several oil-exporting countries, also face a difficult macroeconomic environment with sharply weaker terms of trade and tighter external financial conditions. Growth in China and India has been broadly in line with projections, but trade growth has slowed down noticeably.
Growth in advanced economies is projected to remain modest, in line with 2015 outcomes. Unfavorable demographic trends, low productivity growth, and legacies from the global financial crisis continue to hamper a more robust pickup in activity. While very accommodative monetary policy and lower oil prices will support domestic demand, still-weak external demand, further exchange rate appreciation—especially in the United States—and somewhat tighter financial conditions will weigh on the recovery. In the euro area, the risk of a de-anchoring of inflation expectations is a concern amid large debt overhangs in several countries.
The IMF attributed the stymied global growth to fours risks: ongoing slowdown in China, slump in oil prices and muted demand for commodities and uncertainties in emerging market economies. The IMF further commented that terrorism and the exodus of refugees from war-torn regions could also have spillover effects and hinder economic activity.
To counter the slowdown in global growth, the IMF called for three prong policy action: structural reforms, continued monetary policy accommodation, and fiscal support—in the form of growth-friendly fiscal policies where adjustment is needed and fiscal stimulus where space allows.