IMF lowers global growth forecast
The International Monetary Fund on Tuesday cut its global growth forecast, citing China's economic slowdown and its spillover effects on other countries as well as longer-term factors such as weak productivity gains.
The IMF predicted the global economy will grow 3.1% this year and 3.6% in 2016, trimming its forecast for both years by 0.2 percentage points compared with its estimate in July.
"We see that in the near-term global growth will remain moderate and uneven, and we see higher downside risks" than in July, IMF Economic Counsellor Maurice Obstfeld said at a news conference kicking off the group's fall meetings in Lima, Peru. "The holy grail of robust and synchronized global expansion remains elusive."
The warier outlook largely stems from China's slowdown, which has hammered commodity prices and hurt the emerging markets that export them, and even rippled to the U.S. by sparking a sell-off in stocks. It depicts a global economy that has failed to accelerate significantly six years after the Great Recession and financial crisis ended.
"What happens in China has repercussions for the entire world economy," Obstfeld said.
The picture is brightest in advanced economies — such as the U.S. and euro area — where growth is expected to pick up to a 2% pace this year and 2.2% in 2016 from 1.8% in 2014. Still, that represents a modest downward revision compared with the July forecast.
For the U.S., the IMF slightly raised its growth estimate by 0.1 percentage points to 2.6% this year amid a strong second-quarter rebound from an anemic first quarter marked by harsh winter weather and a West Coast ports slowdown. But the group cut its U.S. projection to 2.8% from 3% for next year in light of deeper long-term headwinds for advanced economies generally, including weak productivity growth, lower investment and aging populations.
A modest recovery in the euro area is expected to continue amid the European Central Bank's bond-buying stimulus, with growth of 1.5% this year and 1.6% next year, roughly in line with the previous forecast. But Japan's economy has slowed sharply after a strong first quarter. The IMF has trimmed its forecast for that country by 0.2 percentage points for both this year and 2016, to 0.6% and 1%, respectively.
China, has been a growth engine for the world economy in recent years. But growth is expected to slow from 7.3% in 2014 to 6.8% this year and 6.3% in 2016 as the country struggles with its shift from export- to consumption-driven economy, the IMF said.
In recent months, China's benchmark stock market has fallen sharply and the government devalued its currency to help prop up its exports. The events have clobbered the price of commodities sold in China, such as oil, metal and copper, and weakened the economies of emerging markets that produce them, including Brazil, Russia and Venezuela.
The IMF forecasts growth of 4% this year and 4.5% in 2016 in emerging markets and developing economies — which account for half the world's GDP and most of its growth — a reduction of 0.2 percentage points for each year. Some of those countries also face risks as the U.S. prepares to raise interest rates for the first time in nearly a decade, a development that will further strengthen the dollar and increase debt payments for countries that borrowed in dollars, the IMF said.
The fund recommended that emerging markets prepare for rising interest rates in the U.S. and that advanced economies, including the U.S, increase infrastructure investment to shore up growth.