The IMF has cut its global forecast by 0.2 percentage points for each of the next two years, including 0.2 percentage point cuts for the USA to 2.6 per cent in both 2016 and 2017.
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The IMF’s latest World Economic Outlook came hours after China, the world’s second biggest economy, reported its weakest annual growth figure for 25 years.
While the US advance was slightly better than the 2.5 per cent posted last year, the International Monetary Fund sees the economy of China – still referred to as an emerging market, and not a G7 member – slowing from the estimated 6.9 per cent growth it saw last year.
The fund said China’s shift to an economy less driven by exports and manufacturing will see its economy slow to 6.3% this year and 6% in 2017, unchanged from its October forecasts.
“In advanced economies, a modest and uneven recovery is expected to continue, with a gradual further narrowing of output gaps”, International Monetary Fund said forecasting U.S. to grow 2.6 per cent in 2016 as compared with 2.5 per cent last year while European Union is expected to expand 1.7 per cent in the next two years.
European growth is expected to be 1.7% in 2016, an upward revision of 0.1 percentage points on October, with no change to the 1.7% pencilled in for 2017.
“Policymakers in emerging markets and developing economies need to redirect activity to new sources of growth”.
Gradual economic recovery in those countries could offset the ongoing slowdown in China, which was one of the three key factors influencing IMF’s outlook.
The organisation said that global financial markets seem to be overreacting to falling oil prices and China.
These concerns have also shot to the top of global investors’ risk lists for 2016 after the plunge stoked worries that the economy may be rapidly deteriorating.
The IMF targeted 2015 with a 3.1% global growth estimate. The country’s metical weakened 32 percent past year, the most among 24 African currencies.
“The picture for emerging market and developing economies is diverse but in many cases challenging”.
Further declines in commodity prices would worsen the outlook for already-fragile commodity producers, and widening yields on energy sector debt threaten a broader tightening of credit conditions.
But it added 0.1 percentage point for its expectations for the euro area this year – which is now forecast to grow by 1.7%, supported by lower oil prices lifting consumer spending.
But chief economist Maurice Obstfeld says: “It’s not a stretch to suggest that (markets) may be reacting very strongly to rather small bits of evidence in an environment of volatility and risk aversion”. “We may be in for a bumpy ride this year, especially in the emerging and developing world”, he said.
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Core inflation rates remain well below inflation objectives in advanced economies.
