IMF Sees Subdued Global Growth, Warns Economic Stagnation Could Fuel Protectionist Calls
IMF News, October 4, 2016
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- Published: October 4, 2016
Global outlook and headline projections
- Global economic growth will remain subdued in 2016 following a slowdown in the United States and Britain’s vote to leave the European Union.
- The world economy will expand 3.1 percent this year, unchanged from the July projection.
- Growth is forecast to increase slightly to 3.4 percent in 2017, driven mainly by recoveries in major emerging market nations including Russia and Brazil.
- “Taken as a whole, the world economy has moved sideways,” said IMF chief economist and economic counsellor, Maurice Obstfeld.
Risks: stagnation, protectionism, and trade
- Persistent stagnation in advanced economies could further fuel populist calls for restrictions on trade and immigration, which the IMF warned would hamper productivity, growth, and innovation.
- “It is vitally important to defend the prospects for increasing trade integration,’’ Obstfeld said. “Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”
Advanced economies: subdued expansion and policy guidance
- Advanced economies will expand 1.6 percent in 2016, less than last year’s 2.1 percent and down from the July forecast of 1.8 percent.
- United States:
- 2016 forecast marked down to 1.6 percent, from 2.2 percent in July.
- U.S. growth is likely to pick up to 2.2 percent in 2017.
- “Further increases in the Federal Reserve’s policy rate ‘should be gradual and tied to clear signs that wages and prices are firming durably,’” the IMF said.
- United Kingdom:
- U.K. growth is predicted to slow to 1.8 percent in 2016 and to 1.1 percent in 2017, down from 2.2 percent last year.
- Uncertainty following the “Brexit’’ referendum will take a toll on investor confidence.
- Euro area:
- Will expand 1.7 percent in 2016 and 1.5 percent in 2017, compared with 2 percent growth in 2015.
- “The European Central Bank should maintain its current appropriately accommodative stance,” the IMF said. “Additional easing through expanded asset purchases may be needed if inflation fails to pick up.”
- Japan:
- Growth expected at 0.5 percent in 2016 and 0.6 percent in 2017.
- Near-term support from government spending and easy monetary policy; medium-term constraints from a shrinking population.
Emerging markets and developing economies
- Emerging market and developing economies:
- Growth will accelerate for the first time in six years to 4.2 percent in 2016, slightly higher than the July forecast of 4.1 percent.
- Forecast to grow 4.6 percent in 2017.
- China:
- Shift from investment and industry toward consumption and services expected to slow short-term growth while building sustainable long-term expansion.
- Government should rein in credit that is “increasing at a dangerous pace’’ and cut off support to unviable state-owned enterprises, “accepting the associated slower GDP growth,” the IMF said.
- China’s economy is forecast to expand 6.6 percent in 2016 and 6.2 percent in 2017, down from growth of 6.9 percent last year.
- “External financial conditions and the outlook for emerging market and developing economies will continue to be shaped to a significant extent by market perceptions of China’s prospects for successfully restructuring and rebalancing its economy,’’ the IMF said.
- India:
- India’s gross domestic product is projected to expand 7.6 percent in 2016 and 7.6 percent in 2017.
- IMF urged India to continue reform of its tax system and eliminate subsidies to provide more resources for investments in infrastructure, education, and health care.
- Sub-Saharan Africa:
- Nigeria’s economy is forecast to shrink 1.7 percent in 2016.
- South Africa will barely expand.
- Côte d’Ivoire, Ethiopia, Kenya, and Senegal expected to grow at more than 5 percent in 2016.
- Latin America:
- Economic activity slowed with several countries in recession; recovery expected to take hold in 2017.
- Venezuela’s output is forecast to plunge 10 percent in 2016 and shrink another 4.5 percent in 2017.
- Brazil will see a contraction of 3.3 percent in 2016 and 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.
- Middle East:
- Countries continue to confront challenging conditions from subdued oil prices, civil conflict, and terrorism.
Policy recommendations and overarching challenge
- The IMF underscored the urgent need for a comprehensive, consistent, and coordinated policy approach to reinvigorate growth, ensure it is distributed more evenly, and make it durable.
- Policy levers to be used in concert:
- Monetary: Central banks in advanced economies should maintain easy monetary policies in the near term; monetary policy alone is insufficient to restore vigor where productivity growth is slowing and populations are aging.
- Fiscal: Where possible, governments should spend more on education, technology, and infrastructure to expand productive capacity while taking steps to alleviate inequality.
- Structural: Many countries need structural reforms to boost labor force participation, better match skills to jobs, and reduce barriers to market entry.
- “By using monetary, fiscal, and structural policies in concert—within countries, consistent over time, and across countries—the whole can be greater than the sum of its parts,” Obstfeld concluded.
IMF News — October 4, 2016