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IMF maintains global growth forecasts, warn of risks
August 19, 2017, 2:13 pm
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The International Monetary Fund (IMF) in its latest assessment of the global economic said that while short-term risks were broadly balanced, medium-term risks were still skewed to the downside. Protracted geopolitical uncertainties, inward-looking policies, lower commodity prices and financial tensions could have in impact on the global growth going into the future warned the IMF.

In its revised update to the World Economic Outlook, the IMF noted that many advanced economies face excess capacity as well as headwinds to potential growth from aging populations, weak investment, and slowly advancing productivity.

The Fund also pointed out that financial stability risks in many emerging economies needed close monitoring, while commodity exporters should continue adjusting to lower revenues, while diversifying their sources of growth over time. Reforms to boost potential output are of the essence, and slow aggregate output growth makes it even more important that gains are shared widely across the income distribution, said IMF.

Nevertheless, maintaining that immediate risks were balanced, the IMF retained its growth forecast for 2017 at 3.5 percent and for 2018 at 3.6 percent. The fund said that projected global growth rates for 2017-18, though higher than the 3.2 percent estimated for 2016, were still below pre-crisis averages, especially for most advanced economies and for commodity-exporting emerging and developing economies.

In its other observations, the Fund noted that growth in global trade and industrial production remained well above 2015–16 rates and that capital flows to emerging economies have been resilient in the first few months of 2017, with a notable pickup in non-resident portfolio inflows.

The Fund revised its growth forecast down in the United States, from 2.3 percent to 2.1 percent in 2017 and from 2.5 percent to 2.1 percent in 2018. The downward revision was based on the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of US fiscal policy changes.

The growth forecast has also been revised down for the United Kingdom for 2017 on weaker-than-expected activity in the first quarter. By contrast, growth projections for 2017 have been revised up for many euro area countries, including France, Germany, Italy, and Spain, where growth for the first quarter of 2017 was generally above expectations.

Emerging and developing economies are projected to see a sustained pickup in activity, with growth rising from 4.6 percent in 2017 to 4.8 percent in 2018, with growth primarily being driven by commodity importers.

China’s growth is expected to decline modestly from 6.7 percent in 2017 to 6.4 percent in 2018 as authorities there look to manage rapid credit growth and non-performing loans. Meanwhile, growth in India is forecast to pick up further in 2017 and 2018 from the 7.1 percent registered in 2016, mainly on strong government spending and data revisions that show gathering momentum.

Growth in the Middle East, North Africa, Afghanistan, and Pakistan region is projected to slow considerably in 2017, reflecting primarily a slowdown in activity in oil exporters, before recovering in 2018. If oil prices continue to decline it could weigh further on the outlook for the region’s oil exporters. With a pickup in global trade and strengthening domestic demand, growth in the ASEAN-5 economies is projected to remain robust at around 5 percent, with generally strong first quarter outturns leading to a slight upward revision for 2017.

Risks to global growth posed by major economies included in China where failure to continue the recent focus on addressing financial sector risks and curb excessive credit growth (mainly through tighter macro-prudential policy settings) could result in an abrupt growth slowdown, with adverse spillovers to other countries through trade, commodity price, and confidence channels.

Similarly, faster-than-expected monetary policy normalization in the United States could tighten global financial conditions and trigger reversals in capital flows to emerging economies, along with US dollar appreciation, straining emerging economies with large leverage, US dollar pegs, or balance sheet mismatches.

In some euro area countries, weak bank balance sheets and an unfavorable profitability outlook could interact with higher political risks to reignite financial stability concerns, and a rise in long-term interest rates would worsen public debt dynamics.

The IMF warned against countries promoting inward-looking policies that could fuel protectionism and hinder market-friendly reforms. The international community should continue to adapt the multilateral system to the changing global economy. Active dialogue and cooperation will help to improve and modernize the rules, while addressing valid country concerns. This process will ensure continued mutual benefits and evenhandedness.

Together with strong domestic policies, it will also help avoid a broad withdrawal from multilateralism, either through widespread protectionism or a competitive race to the bottom in financial and regulatory oversight, which would leave all countries worse off, concluded the Fund in its latest global economic assessment.

 

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