It said China – the world’s second-largest economy – will grow by 6.8 per cent this year and 6.3 per cent next, which is below Beijing’s 7 per cent targeted growth rate.
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International Monetary Fund head of financial stability José Viñals says the effects of high risk premiums, corporate defaults rising in emerging markets and a general decline in appetite for riskier assets could likely lead to a global recession, the Financial Times reports.
“Growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices”, it said. They have been hurt by an economic slowdown in China, which has reduced demand for emerging market raw materials and pushed down prices of commodities such as copper and oil.
According to the IMF’s latest figures, world economic growth will drop from 3.3 per cent to 3.1 per cent this year. “We project a rebound for next year, with 4.5 percent growth in emerging and developing economies, with a further pick-up in subsequent years”, said Obstfeld, adding that this would reflect “a gradual normalization of conditions” in Brazil and Russian Federation. The 2.7% projection for South Korea is lower than both the 3.1% forecast by the Ministry of Strategy and Finance and the 2.8% forecast by the Bank of Korea. In the four biggest economies of the 19-nation eurozone, Spain was poised for the strongest growth, at 3.1 percent this year and 2.5 percent in 2016. In April, the International Monetary Fund downgraded its 2015 forecast by 0.4% and its growth forecast for 2016 by 0.2%.
Meanwhile, a much sharper cut in growth projection for China means India will remain the fastest growing major economy in the world. Indeed, the country’s exports have shown minus growth for nine straight months amid a downturn in the global economy. The report finds that global drivers have played an increasing role in leverage growth, issuance, and spreads. This triggers capital outflows from emerging markets and increases US-dollar denominated debt in these markets.
Vinals said over-borrowing in China, where an August devaluation sent global markets reeling, amounts to almost 25 percent of the Asian power’s economic output and will need to be managed gingerly.
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And tumbling commodity prices have hit oil producing countries, such as Russian Federation, Venezuela and Nigeria. The forecast is of low economic growth globally that will continue for 2016 as well.
