Another day, another downgrade to global growth forecasts. That is the message we are hearing yet again from the International Monetary Fund (IMF) on Tuesday. The IMF sees subdued global growth persisting, and it also is warning that economic stagnation could fuel protectionist calls.
Global growth in 2016 is being forecast at a subpar 3.1%, and rising to just 3.4% in 2017. The IMF sees that countries need to rely on all policy levers — monetary, fiscal and structural — in order to lift growth prospects.
The IMF’s World Economic Outlook noted that global economic growth will remain subdued this year. Issues noted were a slowdown in the United States, as well as the U.K. vote to leave the European Union. For the 2017 pickup to occur, the IMF sees the main driver being from emerging market strength.
Tuesday’s new outlook for supporting growth in the near term noted that central banks in advanced economies should maintain easy monetary policies — still warning that “monetary policy alone won’t restore vigor to economies dogged by slowing productivity growth and aging populations.”
The IMF’s view is that governments need to spend more on education, technology and infrastructure to expand productive capacity and to take steps to alleviate inequality. Structural reforms are also needed to boost labor force participation and to address other issues, according to the World Economic Outlook.
What matters here is not so much that the 2016 outlook for 3.1% growth is unchanged from its July projection. Advanced economies are now forecast to expand by only 1.6% in 2016, less than last year’s 2.1% rate and down from the July forecast of 1.8%.
The IMF marked down its forecast for the United States this year to 1.6%, from 2.2% in July. Also, the IMF sees U.S. growth being likely to pick up to 2.2% next year as the drag from lower energy prices and dollar strength fades.
U.K. growth is predicted to slow to 1.8% this year and to 1.1% in 2017, down from 2.2% last year. The euro area is forecast to expand by 1.7% in 2016 and 1.5% next year, compared with 2% growth in 2015. Next year, global growth is now forecast increase to 3.4% on the back of recoveries in major emerging market nations, including Russia and Brazil.
Growth in Japan is expected to remain subdued at 0.5% this year and 0.6% in 2017. This is the third largest economy, and the IMF said of its monetary policy:
In the near term, government spending and easy monetary policy will support growth; in the medium term, Japan’s economy will be hampered by a shrinking population.
The IMF statement on how it views the European Central Bank’s quantitative easing is for it to continue as is, if not even more efforts:
The European Central Bank should maintain its current appropriately accommodative stance. Additional easing through expanded asset purchases may be needed if inflation fails to pick up.
In emerging market and developing economies, growth is now projected to accelerate for the first time in six years. The IMF sees growth of 4.2% in 2016, slightly higher than the July forecast of 4.1%. Next year’s forecast for emerging economies is now expected to grow 4.6%.
On China, the world’s second largest, growth is forecast to expand 6.6% in 2016 and 6.2% in 2017, down from growth of 6.9% last year.
India’s gross domestic product is projected to expand 7.6% for 2016 and again in 2017.
Sub-Saharan Africa’s largest economies continue to struggle with lower commodity revenues, weighing on growth in the region. Nigeria’s economy is forecast to shrink 1.7% in 2016, and South Africa’s will barely expand.
On Latin America, the IMF said:
Economic activity slowed in Latin America, as several countries are mired in recession, with recovery expected to take hold in 2017. Venezuela’s output is forecast to plunge 10 percent this year and shrink another 4.5 percent in 2017. Brazil will see a contraction of 3.3 percent this year, but is expected to grow at 0.5 percent in 2017, on the assumption of declining political and policy uncertainty and the waning effects of past economic shocks.
IMF chief economist and economic counselor, Maurice Obstfeld, said:
Taken as a whole, the world economy has moved sideways. We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world… It is vitally important to defend the prospects for increasing trade integration. Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.