IMF says global growth to stay weak, warns of populist fallout

WASHINGTON - The International Monetary Fund maintained its forecast for weak global growth on Tuesday and warned that further stagnation would fuel more populist sentiment against trade and immigration that would stifle activity, productivity and innovation.

In the latest update of its World Economic Outlook, the IMF said that a drop in US growth for 2016 due to a weak first-half performance would be offset by strengthening in Japan, Germany, Russia, India and some other emerging markets.

The Fund kept its overall global growth forecasts unchanged at 3.1 percent for 2016 and 3.4 percent for 2017 after cutting its outlook for five straight quarters.

"Taken as a whole, the world economy has moved sideways," IMF chief economist Maurice Obstfeld said in a statement.

"Without determined policy action to support economic activity over the short and longer terms, sub-par growth at recent levels risks perpetuating itself."

The new forecasts were released as global policymakers gathered in Washington for the IMF and World Bank annual meetings this week.

The IMF said advanced economies as a whole would see a weakening of growth in 2016, down 0.2 percentage point from July to 1.6 percent, while emerging market and developing economies will see a 0.1 percentage point gain in growth to 4.2 percent.

The IMF said its 2017 forecast for both groups was unchanged, with advanced economies forecast to grow 1.8 percent and emerging markets growing 4.6 percent.

The United States accounts for much of the decline in advanced economies, with a reduction to 1.6 percent growth from 2.2 percent forecast in July, due to a disappointing first-half performance caused by weak business investment and a draw-down of goods inventories.

The drag from a stronger dollar and lower energy prices should fade by next year.

The Fund also argued for a gradual approach to Federal Reserve interest rate hikes "tied to clear signs that wages and prices are firming durably."

Its growth forecast for Japan improved slightly due to government spending, a delay in a consumption tax increase and expansionary monetary policy, but only to a weak 0.5 percent in 2016 and 0.6 percent in 2017.

For Britain, the IMF lifted its 2016 forecast by 0.1 percentage point as retail spending has held up better than expected after the June vote to leave the European Union.

But it lowered its 2017 forecast by 0.2 percentage points to 1.1 percent on anticipation that uncertainty over separation from Europe will take a bigger toll on investment in the country.

Growth forecasts for China remained unchanged at 6.6 percent for 2016 and 6.2 percent for 2017 as strong policy support and credit growth were fueling domestic consumption.

India's growth will improve slightly to 7.6 percent in both years, while Russia will benefit from a rebound in energy prices.

Obstfeld said that persistently weak growth that leaves lower-income people behind has fueled a political movement "that blames globalization for all woes" and seeks to raise trade barriers, adding that the vote for "Brexit" was one example of this.

"In short, growth has been too low for too long, and in many countries its benefits have reached too few -- with political repercussions that are likely to depress global growth further," Obstfeld said.

The IMF said other risks to the outlook included further turbulence from China's transition towards a more consumer-driven economy, another drop in commodity prices, a sharp hike in trade barriers and a flare-up in geopolitical tensions.

source: www.abs-cbnnews.com

IMF slashes 2015-2016 world growth forecast

WASHINGTON - The International Monetary Fund on Tuesday sharply cut its 2015-2016 world growth forecast of only six months ago, saying lower oil prices did not offset pervasive weaknesses around the globe.

The IMF said poorer prospects in China, Russia, the euro area and Japan will hold world growth to just 3.5 percent this year and 3.7 percent in 2016.

That was 0.3 percentage points lower than in its previous World Economic Outlook in October, and underscored the steady deterioration of the economic picture for many countries, due to sluggish investment, slowing trade and falling commodity prices.

While the United States will remain the one bright spot among major economies, Europe will continue to struggle with disinflation, and China's growth, hit by slower export growth and a real estate slump, will drag to its slowest pace in a quarter-century.

The IMF forecast that the United States, the world's largest economy, will expand by 3.6 percent this year, up a half-percentage point from the previous outlook.

China, the second largest economy, will expand at 6.8 percent this year -- 0.3 percent slower than previously expected -- and 6.3 percent in 2016, the IMF said.

The last time Chinese growth fell below seven percent was in the crunch of 1990, when it slowed to 3.8 percent.

The impact of slower Chinese growth will spill over especially to other Asian countries, the IMF said, resulting in its downgrade of their growth prospects as well.

For the eurozone and Japan, it said, "stagnation and low inflation are still concerns" requiring sustained monetary easing untraditional means to keep interest rates from rising.

In the eurozone, where the region's central bank is expected to decide to boost stimulus this week, low oil prices and the depreciated euro are a help to growth. But it will also struggle with low levels of investment and poorer demand for the region's exports from emerging economies.

The region is expected to expand 1.2 percent in 2015, and 1.4 percent next year.

Japan's stimulus has not worked as well as expected, and the IMF expects it to expand just 0.6 percent this year, picking up to a still-sluggish 0.8 percent in 2016.

Russia, already pressed by sanctions over its support for secessionists in Ukraine, is particularly hurt by lower oil prices. The IMF now says the country's economy will contract 3.0 percent this year and 1.0 percent in 2016. In October the IMF was still predicting slight growth for the country.

Cheap oil good but...
The world's crisis lender warned that continued volatility in markets, partially a product of the US beginning to tighten monetary policy, pushing the dollar higher, will challenge governments and central banks around the world for some time to come.

And while the halving of crude prices is a net positive for the world, the strong dollar partially negates that effect for many oil importers using weakening currencies. And the impact of slower growth in trade, low commodity prices and market turbulence will all but erase the gains from cheap oil.

"New factors supporting growth -- lower oil prices, but also depreciation of euro and yen -- are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries," says Olivier Blanchard, the IMF's chief economist.

Blanchard said it means "good news for oil importers, bad news for oil exporters. Good news for commodity importers, bad news for exporters... Good news for countries more linked to the euro and the yen, bad news for those more linked to the dollar."

The IMF stressed that countries need to persist in restructuring, reform and investment despite the weaker conditions.

"Raising actual and potential output is a policy priority in most economies... There is an urgent need for structural reforms in many economies, advanced and emerging market alike," even as they face different choices and needs in their overall economic policies.

It included in that prescription the need for governments to take advantage of lower oil prices to cut subsidies to strengthen their budgets for the long term.

source: www.abs-cbnnews.com