The International Monetary Fund has downgraded its forecast for global economic growth this year.
[contextly_sidebar id=”QnprhTHCVU6jkZatg8tAhIPpsqnx10QH”]It has reduced its figure to 3.1% from the 3.3% it predicted in July.
The 2016 forecast is down to 3.6% from 3.8%.
“A return to robust and synchronized global expansion remains elusive,” the IMF says.
The report also warns that the risks of an outcome worse than its forecasts are more pronounced than they were just a few months ago.
The sharpest downgrades are for emerging economies, especially Brazil, Nigeria, South Africa and Russia.
So the IMF is still predicting growth, but it is distinctly lacklustre growth, especially for the current year.
Modest recovery
The developed economies are expected to manage slightly stronger growth than before, reflecting the modest recovery in the eurozone and the return of growth in Japan, though that looks tentative at best.
Receding legacies from the financial crisis are elements in that story, as is the long-lasting support from central bank policies – low and zero interest rates and also quantitative easing, which continues in the eurozone and Japan.
The emerging and developing economies still account for what the IMF calls the lion’s share of global growth, but they are slowing, in 2015 for the fifth consecutive year.
One important factor is China’s economic transition – from very rapid growth driven by investment and industrial exports to moderate expansion based to a greater extent on Chinese consumer spending increasingly on services.
The IMF mentions that shift as one direct factor behind the emerging world slowdown.
But China is also a key element behind other forces,
Commodity prices
Oil producers have been hit by the decline in the price of their exports.
Nigeria and Russia are striking examples. China’s slowdown is one of the underlying forces, along with abundant supplies of crude oil.
The report also mentions the declines of other commodity prices as a factor, especially in Latin America. Some countries also have domestic political issues that have encroached onto economic performance; Brazil for example.
The other downbeat element in this report is the view of risks – how the global economy might perform differently from this forecast.
Financial market volatility is a possible danger, if interest rate rises in the US encourage investors to move funds out of emerging economies more rapidly than they have done already.
Increased debt in the emerging economies, lower commodity prices and slower growth could undermine their financial stability, which could in turn hit wider economic performance.
China’s slowdown is another possible trouble spot, if it does not manage its economic transition reasonably smoothly.
There is also the possibility of lower potential growth – that’s a wide-ranging term for factors that govern the maximum capacity of an economy to grow if nothing much goes wrong.
Weak investment (though not in China) and the effect of longer-term unemployment on workers’ skills are examples of forces that could do further damage.
And there’s one more risk we have heard about before: Greece. In terms of the international economic impact the situation has calmed greatly.
But the IMF warns there is the potential for renewed financial stress in Europe if there is fresh political uncertainty there.
Still, the IMF’s main forecast is for growth to pick up somewhat next year – globally and in the emerging economies.
It’s just that it is still not all that convincing a recovery.
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Source: BBC
