Share

International Monetary Fund cuts global economic growth forecast on United States slowdown

Growth in emerging market and developing economies has been estimated at 4.2 percent in 2015, down 0.1 percent from the projection made April. Growth should speed up to 3.8 percent next year, it said, unchanged from earlier forecasts.

Advertisement

It blamed “one-off factors, notably harsh winter weather and port closures”, as well as “a strong downsizing of capital expenditure in the oil sector”, for hurting North American economic activity.

Those drivers are wage growth, labor market conditions, easy financial conditions, lower fuel prices and a strengthening housing market, according to the International Monetary Fund.

International Monetary Fund chief economist Olivier Blanchard said that the 30 percent meltdown in the Shanghai and Shenzhen markets since mid-June is “very much a sideshow” to the greater economy and would not undermine growth overall. In the first quarter of 2015 – the starting point for the latest update – world growth at 2.2 percent fell 80 basis points short of the forecast made in April 2015. Spanish growth rate has also been projected to improve for this year and the next to 3.1% from 2.5% and 2.5% from 2%, respectively.

Things should be better later this year, at least for the USA and other advanced economies. In addition, the organisation warned that the uncertainty in Greece and re-balancing in China pose risks to the outlook.

The fund expects the US economy to grow 3 per cent in 2016.

Without directly talking about the propositions, Mrs Lagarde spoke of “important developments”, and said Greece was dealing with a “painful crisis that must be dealt with”.

For China, Australia’s number one trading partner, it has kept its growth forecasts of 6.8 per cent and 6.3 per cent for this year and next. In 2016, growth is expected to strengthen to 3.8 per cent. Efforts at implementing structural reforms remain urgent across advanced economies, both to tackle crisis legacies and to raise potential output.

Blanchard said that the USA economy’s soft first quarter, a 0.2 percent contraction, turned out to not be a sign of underlying weakness “now that the fog has largely cleared”.

Advertisement

“The stress tests of the last 10 days (around events in Greece) reassure us and make us think that if things go badly in Greece… the rest of the world would probably survive quite well”, Mr Blanchard said.

The IMF expects the US economy to bounce back from the disappointing first quarter